The OBBB impact on hospitality: 6 key tax provisions
The One Big Beautiful Bill (OBBB) Act, signed into law on July 4, 2025, represents a sweeping overhaul of federal tax policy. While its scope is broad, several provisions stand out as driving the OBBB impact on hospitality — a sector that thrives on service, labor and capital investment.
Here’s an overview of six of the most relevant tax changes for hospitality businesses, especially those operating restaurants, hotels and entertainment venues:
1. Tip and overtime income
OBBB introduces a temporary exemption from federal income tax on tips and overtime pay. For the hospitality industry — where tipping is a major component of employee compensation — this provision could reduce the effective tax burden on workers, but could create a burden on payroll reporting.
Currently, many businesses lack a way to track some of the new, required reporting information. Leadership will need to wait for more guidance to establish how to implement these changes and determine how to work with payroll companies.
2. Bonus depreciation returns to 100%
OBBB restores 100% bonus depreciation for qualified property placed in service after January 19, 2025.
This update is especially beneficial for hospitality businesses investing in renovations, new equipment or property upgrades. Immediate expensing of capital expenditures can significantly improve cash flow and ROI calculations for expansion projects.
3. Section 199A deduction made permanent
The 20% deduction for qualified business income under Section 199A is now permanent. This provision is particularly relevant for hospitality businesses structured as pass-through entities (e.g., partnerships, S corporations), allowing owners to deduct a portion of their business income and reduce their effective tax rate.
4. 179D: Energy-efficient improvements repealed
Section 179D of the Internal Revenue Code offers tax deductions for energy-efficient upgrades to commercial buildings, such as interior lighting, HVAC and hot water systems and building envelope improvements.
The OBBB ends these deductions for construction starting after June 30, 2026. Businesses looking to take advantage of the deduction may need to revisit their energy projects and accelerate such improvements to an earlier time period.
5. Limitation on business interest deduction improved
Deductions for business interest expenses are capped at 30% of a taxpayer’s adjusted taxable income (ATI) unless they meet certain exclusions.
In 2022, the calculation of ATI became more restrictive when it moved from a more EBITDA-based calculation to EBIT. OBBB permanently reverses this, restoring the EBITDA-based ATI calculation for tax years starting after December 31, 2024.
6. Employee compensation and benefit changes
OBBB introduced major updates to employee compensation and benefits, including broader HSA eligibility, permanent telehealth coverage, higher dependent care limits and Trump accounts. These changes require payroll and benefits system adjustments, as well as updated employee communications.
Early coordination with service providers is important to help ensure compliance, maximize tax benefits and prevent administrative error.
Your next steps
The OBBB introduces significant changes that can provide substantial benefits to hospitality businesses, from enhanced tax deductions to improved employee benefits. However, these opportunities also come with complexities that require careful planning and execution.
As you refine your approach to OBBB tax changes, consider the following actions:
- Engage experienced guidance: Collaborate closely with your tax advisor to assess how these changes affect your tax planning strategies. For functions like payroll and benefits administration, consider leveraging outsourced payroll solutions to help ensure compliance and reduce internal strain.
- Align with key deadlines: Time-sensitive incentives, such as the phased-out 179D deduction, demand careful coordination. Make sure your project timelines and documentation meet all eligibility and reporting requirements.
- Monitor regulatory updates: Several provisions are still awaiting clarification from the IRS. Stay informed on new guidance so that you can remain compliant and capitalize on emerging opportunities.
How Wipfli can help
To navigate the OBBB updates effectively, it’s crucial to have an advisor who understands the intricacies of the new laws and can help you maximize your benefits. Wipfli's team of experienced tax professionals is ready to help you understand and implement these provisions while enhancing your business’s financial health.
Reach out today to discuss how you can be fully prepared to leverage these new opportunities and position your business for success.
Explore our tax servicesYou can see the latest OBBB news on our policy updates page, or check out these additional resources:
