Here’s what small businesses need to know about the One Big Beautiful Bill Act

The One Big Beautiful Bill Act (OBBBA), or H.R. 1, recently became law. It includes an extension of parts of the 2017 Tax Cuts and Jobs Act that were scheduled to expire at the end of the year. While presented as an effort to cut down on federal spending, the bill includes more than $1 trillion in cuts to critical programs necessary for the small business community, such as Medicaid and the Affordable Care Act (ACA), to offset trillions in tax cuts for the wealthiest taxpayers. To help you understand how this legislation could impact your business, we’ve gathered the key information you need to know.

Healthcare coverage could become harder to access

Millions of small business owners and employees rely on Medicaid—a joint federal and state program that helps those with limited income cover medical costs—to access affordable healthcare coverage. In fact, 20% of small business owners, employees, and their family members are covered by Medicaid. With OBBBA’s new spending cuts, it is estimated that millions of small business owners and their employees will lose health insurance coverage over the next decade. 

Health insurance premiums could become more expensive for those on an Affordable Care Act plan 

In addition to hefty cuts to Medicaid programs, the new law failed to renew the ACA’s enhanced premium tax credits enacted during previous legislative sessions. These credits have helped small business owners and their employees with household incomes between 100%-400% of the federal poverty level lower the costs of their health insurance premiums. If Congress does not act this year to extend these tax benefits for ACA plans, many local entrepreneurs and their employees will face significantly higher healthcare costs. 

Business tax provisions will continue to benefit the wealthiest taxpayers

OBBBA makes several provisions from the 2017 Tax Cuts and Jobs Act permanent, including the Section 199A deduction for pass-through entities, which are the vast majority of small firms. Currently, Sec. 199A allows businesses organized as pass-through entities to deduct up to 20% of their qualifying business income (QBI), which is broadly defined as a business’s net profit after deductions, from their annual federal taxes. OBBBA permanently extended the 20% pass-through deduction and also created a new minimum deduction of $400 for pass-through entities earning at least $1,000 in QBI. Although framed as a “small business deduction,” more than half of the total benefit of 199A goes to the top 1% of earners, while business owners with adjusted gross incomes under $100,000 receive an average deduction of less than $2,000, translating to hardly any tax savings at all. Making this deduction permanent, without enacting structural reforms that drive increased tax relief to smaller, under-resourced businesses, widens the gap between Main Street businesses and the wealthiest taxpayers. Unfortunately, the $400 minimum is too little to meaningfully help the vast majority of small firms.

Borrowing money could cost more

The OBBBA is projected to increase America's national debt by at least $3.3 trillion. When the federal government takes on more debt, there can be a number of consequences, including growing inflation. But the most significant impact for your small business could be an increase in interest rates on loans. This could happen primarily because the government will have to borrow more and more money to finance its growing debt. When government demand for loans increases, interest rates tend to increase for everyone -- even private individuals and businesses because of greater overall competition for cash. If interest rates rise across the board, it will become more expensive for small business owners to borrow the funds needed to start or grow their enterprises.  

Increased tax deductions for some business improvements 

One of the few positive aspects of the bill was the expansion of Section 179. This means that instead of being able to deduct a maximum of $1.25 million in tax write-offs for the cost of machinery, software and other improvements in the first year of service, small businesses will now be able to deduct up to $2.5 million in year one. This will allow more small business owners making significant investments to lower their tax liability and recoup some of their investment faster than before. 

Looking for more resources to help you navigate changes to healthcare options this year? Explore our tools on healthcare benefits for guidance and support.