The One Big Beautiful Bill: What It Means for Hospitality, Retail and Restaurant Businesses

The One Big Beautiful Bill Act has introduced tax changes that will significantly impact both employees and employers in the hospitality industry. And with these changes come new opportunities and new responsibilities.

Here, we outline the most relevant provisions for retail, restaurant and hospitality organizations (plus what you need to know to prepare your business to apply them).

No Tax on Tips

For restaurants, hotels and other hospitality businesses, the new tip income deduction (commonly referred to as “no tax on tips”) is one of the most impactful changes in the One Big Beautiful Bill Act.

Starting in 2025, tipped employees can deduct up to $25,000 in tip income from their federal taxable income. This deduction phases out for individuals earning more than $150,000 (single) or $300,000 (joint) and is available through 2028.

While the IRS will eventually update Form W-2 to include new boxes for reporting tip income, employers will be responsible for tracking and reporting those amounts accurately. That tracking is critical because employees will reflect the reported tips on their personal tax returns and receive the deduction.

The IRS is expected to issue more detailed guidance by the end of 2025 about how tip income should be tracked and reported, but in the meantime, businesses should continue tracking tips as usual.

No Tax on Overtime

For businesses with hourly staff, the new overtime income tax deduction is another significant change.

Starting in 2025, W-2 employees can deduct up to $12,500 (single) or $25,000 (joint) of qualified overtime pay from their federal taxable income. Similar to the tip income deduction, the overtime income deduction phases out for incomes above $150,000 (single) or $300,000 (joint) and is available through 2028.

Only the extra half-time portion of “time-and-a-half” pay qualifies, and the overtime must meet the definition of “qualified compensation” under the Fair Labor Standards Act (FLSA).

There’s no change to withholding for now, but employers should ensure their payroll systems can track overtime correctly. Employees will claim the overtime deduction when filing their tax returns, and the IRS is expected to release more guidance for tracking and reporting overtime income by the end of 2025.

Employers in the hospitality industry (where overtime is common) should keep clear overtime records and begin evaluating whether their current payroll systems can support the tracking and reporting requirements this provision will eventually demand.

Permanent Family Medical Leave Tax Credit

The One Big Beautiful Bill Act has made the Family Medical Leave Tax Credit permanent, providing a great opportunity for employers in the hospitality industry, where finding and keeping good employees is often a challenge.

Employers offering at least two weeks of paid leave at 50% or more of regular wages can qualify. This applies to parental leave, caregiving and medical leave, and it’s designed to encourage retention and work-life balance while also supporting long-term employment.

For hospitality businesses that often rely on hourly staff, seasonal workers or high-turnover roles, this credit offers a powerful incentive to invest in employee well-being and long-term workforce planning.

Expanded FICA Tip Credit

The FICA tip credit has now been expanded to include spas and salons.

Until now, only restaurants could claim this credit on their business tax returns, even though other service-based businesses also handle substantial tip income. With the passage of the One Big Beautiful Bill Act, owners in these industries can now take advantage of the same tax benefit.

For hospitality businesses that operate in tip-driven environments, this expansion opens the door to new savings and stronger tax planning strategies.

Qualified Business Income (QBI) Deduction

The QBI deduction, first introduced under the Tax Cuts and Jobs Act (TCJA), has now been made permanent.

This deduction allows pass-through entities like partnerships, S-corporations, and sole proprietorships to deduct 20% of their qualified business income on their personal tax returns. For restaurant groups, hotel operators and retail owners structured as pass-throughs, this provision helps reduce taxable income and improve cash flow.

Bonus Depreciation

The One Big Beautiful Bill Act restores 100% bonus depreciation for assets placed in service after January 19, 2025. That means businesses can fully write off qualifying purchases (like kitchen appliances, furniture or point-of-sale systems) in the year they’re put to use.

For hospitality business owners, this change makes it easier to reinvest in operations without waiting years to recover costs through depreciation.

Business Interest Expense Deduction

The business interest expense deduction is now based on earnings before interest, tax, depreciation and amortization (EBITDA) instead of earnings before interest and tax (EBIT). This shift gives businesses more room to deduct interest expenses, which can make a real difference for hospitality organizations looking to finance renovations, expansions or equipment upgrades.

Learn More and Connect with an Advisor

The One Big Beautiful Bill Act brings some of the most significant tax changes the hospitality industry has seen in years. And with the opportunities come new responsibilities in and around payroll tracking, reporting and long-term planning.

Talk with your tax advisor about how these changes apply to your business, and review any upcoming investments or purchases in light of the new depreciation rules.

The earlier you start, the better positioned you’ll be to take full advantage of what this bill offers. To learn more about how the new tax legislation will impact your hospitality, retail or restaurant organization, contact your Warren Averett advisor directly, or ask a member of our team to reach out to you.