The One Big Beautiful Bill Act and what it means for restaurant operators

With the recent passing of the One Big Beautiful Bill Act (OBBBA), many restaurant owners and operators are likely wondering what this means for their business, finances, and day-to-day operations. Here we’ll touch on a few of the provisions that will likely be commonly applicable to the restaurant industry.

No tax on tips

One of the most touted pieces of the bill, the no tax on tips provision allows for tipped employees in certain occupations to deduct a portion of their tip income from their Federal taxable income when preparing their personal tax return. While it is not expected to have a significant impact on restaurants at the operational level, employers are advised to remain alert as we wait for guidance from Treasury about specific items pertaining to this provision. Additionally, since the deduction applies only to Federal income tax and not Social Security or Medicare, the FICA tip credit which many restaurant owners benefit from should be unaffected.

No tax on overtime

Similar to no tax on tips, this portion of the bill allows for certain employees who are compensated for overtime hours to deduct a portion of that income on their personal tax return. Form W-2 currently has no mechanism for reporting overtime wages separately, so payroll reporting will likely see some increased complexity as the applicable forms are modified to accommodate the necessary information reporting. Payroll providers will in all likelihood be well prepared to handle this additional layer of compliance, but employers are advised to verify with their providers to ensure smooth and accurate reporting for the upcoming tax year.

Exception for Deductibility of Employee Shift Meals

The Tax Cuts and Jobs Act of 2017 included a provision which would eliminate the deduction for expenses incurred to provide meals to employees for the convenience of the employer, beginning in 2026. The OBBBA however adds an exception to continue to allow the deduction for establishments that sell food and beverages, meaning restaurants that provide employee shift meals will continue to be able to deduct the cost of those meals.

Section 199A Qualified Business Income Deduction

Also enacted by the Tax Cuts and Jobs Act, the 199A deduction allows taxpayers a 20% deduction of qualified business income on their personal return, subject to certain limits and phase-outs. Originally scheduled to sunset after 2025, the OBBBA makes this deduction permanent, which will help reduce Federal income taxes for many restaurant owners.