What Banks Need to Know Under OBBBA: Compliance & Strategic Opportunities

The recently enacted One Big Beautiful Bill Act (OBBBA) reshapes corporate and individual tax provisions and introduces new reporting obligations. Below is a summary of the provisions most relevant to banks and the steps we recommend.

1. Corporate Charitable Contributions – New 1% Floor

• Effective: Tax years beginning after 12/31/2025.
• Change: A 1% of taxable income “floor” now applies before charitable gifts can be deducted. The 10% cap remains. Gifts under the floor are nondeductible in the current year but can be carried forward for up to five years.
• Action: Reassess giving budgets; consider using donor-advised funds or classifying certain sponsorships as advertising (deductible under §162) where support provides a direct business benefit.

2. Overtime Pay Deduction – Payroll Implications

• Effective: 2025–2028.
• Change: Employees may claim an above-the-line deduction for the overtime premium portion (the “½” in time-and-a-half), capped at $12,500 (single) / $25,000 (joint). Phase-outs apply above $150,000 / $300,000 MAGI.
• Employer impact: Must separately track and report overtime premium on W-2s (new codes; transition relief in 2025).
• Action: Update payroll systems now; educate employees that this is a deduction, not exempt income. Continue to monitor litigation over DOL overtime-salary thresholds, which may affect who qualifies as “non-exempt.”

3. Car Loan Interest Deduction – Lender Reporting Compliance

• Effective: Retroactive to 1/1/2025; runs through 2028.
• Change: Individuals may deduct up to $10,000/year of interest on qualifying personal auto loans (new vehicles, U.S. final assembly, personal use, first lien).
• Reporting: Lenders must file an information return when ≥$600 interest is received and furnish borrower statements by Jan 31 (the first is due Jan 31, 2026). Required data points include borrower information, loan origination date, total interest, and VIN/final assembly verification.
• Action:
  • Retroactively review the 2025 loan portfolio for eligible loans.
  • Update origination systems to capture VIN and assembly data.
  • Build reporting processes to meet the Jan 31, 2026, deadline.

4. Bonus Depreciation & Section 179 Expensing – Capital Investment Incentives

• Effective:
  • 100% bonus depreciation for property placed in service after 1/19/2025 (new and used).
  • §179 expensing expanded to $2.5M, with a phase-out starting at $4M, for tax years beginning after 12/31/2024.
• Action: Expect stronger demand for equipment and facility financing. The QBI (§199A) deduction has been permanently restored and coordinated with depreciation rules, ensuring clients can benefit fully from both.

5. Paid Family & Medical Leave (PFML) Credit – Made Permanent

• Effective: Tax years beginning after 12/31/2025.
• Change: The §45S credit is permanent. Employers may claim it on qualified wages or insurance premiums. Requirements include: at least two weeks of leave at ≥50% wage replacement, eligibility after one year of service (or 6 months at the employer’s election), and 20+ hours/week customary employment. State-mandated leave counts for eligibility but not for credit amounts.
• Action: Review or adopt a written PFML policy that satisfies §45S; explore insured PFML options to maximize credit.

6. Employer-Provided Child-Care Credit – Permanently Enhanced

• Effective: Expenses paid/incurred after 12/31/2025.
• Change: Credit is 40% of qualified costs (50% for eligible small businesses), capped at $500k ($600k for small businesses) per year. Caps are indexed starting in 2026. Multi-employer and intermediary arrangements are explicitly covered.
• Action: Consider on-site, contracted, or consortium models to capture the expanded credit and update the benefits strategy accordingly.

7. Higher Education & Student Finance Changes – Market Impact

• Effective: Mostly July 1, 2026, affecting the 2026-27 academic year.
• Changes:
  • Eliminates Grad PLUS loans.
  • Imposes lifetime caps: $100k for most graduate programs; $200k for law/medical.
  • Replaces existing IDR plans with a new Repayment Assistance Plan (RAP), which may create payment cliffs and higher default risk.
  • Replaces flat 1.4% endowment excise with tiered rates based on per-student endowment.
  • Employer student-loan repayment benefit exclusion made permanent and indexed starting in 2026.
• Action: Anticipate demand for private graduate student loans; evaluate pricing, risk models, and compliance with Reg Z private-loan disclosures. Consider partnerships with employers offering student-loan repayment benefits.

Key Compliance Deadlines

• Jan 31, 2026: First auto-interest borrower statements due; IRS filing due per forthcoming specs.
• 2026 tax years: Charitable 1% floor, permanent PFML credit, and enhanced child-care credit take effect.
• 2025 year-end: Payroll must be ready for overtime W-2 reporting.

Next Steps

We recommend that banks establish cross-functional working groups (tax, HR, lending, compliance) to implement payroll, reporting, and policy updates now. On the client-facing side, OBBBA creates clear opportunities to expand equipment financing, student lending, and benefit-related advisory services.

We would be pleased to walk through an implementation plan with your team.

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