The One Big Beautiful Bill Act (OBBBA) will have a significant impact on global mobility programs and tax-equalized employees. Most of the individual changes are immediately effective for 2025, so employers should quickly assess the implications for any tax equalization programs. The key changes most likely to affect global mobility programs and employees are outlined below.
Changes to Global Mobility Provisions
- Moving expenses: For tax years beginning after 2025, the OBBBA permanently suspends the moving expense deduction for employees (except for active-duty military members and those in the intelligence community) and the income tax exclusion for most taxpayers, which had been previously suspended under the TCJA from 2017 to 2025. Employers who pay employees’ moving expenses must report those amounts as taxable wages on Form W-2, making the amounts subject to income, Social Security, and Medicare taxes. Employers can deduct these amounts as compensation expenses.
- Individual SALT limitation: The OBBBA temporarily increases the limit on the federal deduction for state and local taxes (the SALT cap) to $40,000 in 2025 (from the current $10,000) and adjusts it annually through 2029. In 2026, the cap will be $40,400, and then will increase by 1% annually, through 2029. Starting in 2030, the SALT cap will revert to the current $10,000.
The deduction amount available phases down for taxpayers with modified adjusted gross income (MAGI) over $500,000 in 2025. The MAGI threshold will be increased by 1% each year from 2026 to 2029. The phasedown will reduce the taxpayer’s SALT deduction by 30% of the amount the taxpayer’s MAGI exceeds the threshold amount, but the limit on a taxpayer’s SALT deduction could never go below $10,000.
BDO Insight
The greatest impact of the increased SALT cap for tax-equalized employees is that it will affect the employees’ actual and hypothetical tax liabilities, particularly for those who reside in high-tax states. However, high-income taxpayers may not fully benefit from the increased SALT cap because of the limitations on itemized deductions (discussed below). In addition, because the SALT deduction is an add-back for alternative minimum tax (AMT) purposes, it may render some taxpayers subject to AMT.
- Limitations on itemized deductions: The OBBBA permanently repeals the Pease limitation, which had been suspended under the TCJA, but introduces a new rule: starting after 2025, the value of itemized deductions will be reduced by 2/37 of the lesser of the allowable itemized deductions or the excess of taxable income over the 37% tax rate threshold, effectively capping the benefit of itemized deductions at 35% for taxpayers in the highest tax bracket. The permanent repeal of miscellaneous itemized deductions also takes effect for tax years after 2025.
BDO Insight
With the OBBBA’s permanent repeal of miscellaneous itemized deductions, employees repaying income of $3,000 or less will not be entitled to a deduction. Consequently, tax-equalized employees who repay tax settlement balances to their employers cannot receive a tax benefit for this repayment. However, repayments exceeding $3,000 may still be claimed as a credit or deduction on the tax return, since they are eligible for claim of right treatment.
- Excise tax on certain remittance transfers: The OBBBA imposes a 1% excise tax on electronic fund transfers of cash, money order, cashier’s check, or similar instrument from U.S. senders to foreign recipients, effective for transfers after December 31, 2025. Exemptions apply for transfers from certain financial institutions or those funded by U.S.-issued debit or credit cards. No tax credit is available for this tax.
- Social Security Number requirement for education credits: Under the OBBBA, a valid SSN is now required to claim the American Opportunity and Lifetime Learning tax credits; individual taxpayer identification numbers (ITINs) are no longer accepted. Noncompliant returns will have these credits automatically disallowed. The new rule applies to tax years beginning after December 31, 2025.
- Deduction for qualified residence interest: For tax years after 2025, the OBBBA permanently limits the mortgage interest deduction to acquisition debt of $750,000 ($375,000 if married filing separately), with the $1 million cap still applying to debt incurred on or before December 31, 2017.
BDO Insight
Because itemized deductions, such as the mortgage interest deduction, directly impact a tax-equalized employee’s hypothetical and actual tax liability, global mobility programs should work with their tax advisors to determine how program costs may be impacted.
- Nonitemizers’ charitable deduction for individuals: For tax years after 2025, the OBBBA generally allows nonitemizers to claim a charitable deduction for cash contributions to public charities, up to $1,000 ($2,000 if married filing jointly).
- Additional expenses treated as qualified higher education expenses for purposes of 529 plans: The OBBBA expands qualified higher education expenses for 529 accounts, effective for distributions after July 4, 2025, and limits total annual cash distributions from all qualified tuition programs to $20,000 per year for tax years after 2025.
The OBBBA provisions affecting global mobility merit careful review and modeling of the cost implications for both global businesses and their mobile employees.
Please visit BDO’s Global Employer Services page for more information on how BDO can help.