A Guide for Businesses, Workers, and Tax Professionals

🗓️ Passed by House Ways and Means Committee – May 14, 2025

The latest House tax reconciliation bill introduces a wide range of reforms impacting payroll, employee benefits, and tax planning. From tip and overtime deductions to expanded family leave credits and tighter oversight on tax credits, here’s a breakdown of what you need to know — with helpful icons and simplified explanations.

💰 Permanent Tax Cuts for Individuals

• ✅ Lower Income Tax Rates Locked In:
  Preserves the reduced federal tax brackets from the 2017 Tax Cuts and Jobs Act (TCJA), including the top rate cut from 39.6% to 37%.
• 🏠 Standard Deduction Made Permanent:
  • Married Filing Jointly: $32,600 (starting 2026)
  • ✖️ Personal exemptions permanently repealed.

📦 Eliminations & Repeals

• 🚚 Moving Expense Deductions Eliminated (Except Military): No more exclusions or deductions for relocation expenses unless you’re active-duty military.
• 🚴‍♂️ Bicycle Commuting Tax Benefit Repealed: The $20/month exclusion for bike commuters is gone for good after 2025.

💵 New Payroll-Related Deductions

• 💁‍♀️ No Tax on Tips (2025–2028):
  Employees and eligible contractors can deduct qualified tips from taxable income.
  ✅ Must be:
  • Voluntarily given by customer
  • Not negotiated in advance ❌ Not available for high-income earners or certain service businesses.
• 🕐 No Tax on Overtime Pay (2025–2028):
  Overtime wages paid above standard hours under FLSA can be deducted.
  ✅ Conditions:
  • Must meet overtime pay rules
  • Not available to highly compensated employees

👶 Enhanced Employer Credits & Benefits

• 🧒 Child Care Tax Credit for Employers:
  • 🔼 Credit cap raised to $500,000 (from $150,000)
  • 💼 Small businesses: up to $600,000 credit
  • 📊 Covers 40–50% of qualifying expenses
  • 💡 New pooling options and third-party arrangements allowed
• 👪 Paid Family & Medical Leave Credit
  • 🔁 Made permanent
  • 💸 Covers 12.5%–25% of wages during leave
  • 🏛️ Includes insurance premiums
  • ⏱️ Reduced eligibility period for employees (6 months instead of 1 year)
• 👶 Adoption Credit Boosted:
  • 📥 Up to $5,000 made refundable
  • 🔁 Nonrefundable portion still carried forward
  • 🎯 Helps lower-income families with limited tax liability
• 🎓 Employer Student Loan Assistance Exclusion:
  • 🔒 Permanently allows employers to provide up to $5,250 in student loan payments tax-free
  • 📈 Indexed for inflation

🏥 Health Plan Modernization

• 🏥 CHOICE Arrangements (formerly ICHRAs):
  • 💼 Employers can reimburse employees for buying personal health insurance
  • 🔐 Officially codified in law
  • 🧾 Eligible for tax-preferred treatment
• 🧾 Expanded CHOICE Plan Incentives for Small Employers:
  • 💰 Tax credit:
    • $100/month per employee (Year 1)
    • $50/month per employee (Year 2)
• ✅ Available for businesses with fewer than 50 employees offering CHOICE plans for the first time

🧾 EITC Reforms for Accuracy & Integrity

• 🔍 Stronger Oversight on Earned Income Tax Credit (EITC):
  • 📬 IRS will notify taxpayers of duplicate child SSN use
  • 🕒 Refund delays until October 15, 2025 for claims under review
  • ⚖️ New pre-certification process for better accuracy
  • 🎖️ Special credit added for Purple Heart recipients returning to work

🛑 Crackdown on Fraudulent ERC Claims

• 💼 Stricter Enforcement of Employee Retention Credit (ERC):
  • 💣 $1,000 penalty for ERC promoters who fail due diligence
  • ❌ IRS barred from paying claims filed after January 31, 2024
  • ⚖️ More power for IRS to pursue abusive credit schemes

📈 Summary: What This Means for Employers & Workers

✅ Business Owners:

• Expanded credits reduce your tax bill and support benefits like child care and leave
• New flexibility in offering health coverage
• Deductible overtime and tip pay can boost employee retention

✅ Employees & Gig Workers:

• Direct tax savings on tips and overtime (if qualified)
• Better access to family leave and adoption support
• More help repaying student loans