Key Takeaways
- The QBI deduction is now permanent, helping restaurant owners reduce taxable income.
- Restaurants can fully expense capital investments with the return of 100% bonus depreciation.
- The Section 179 limit has increased to $2.5 million, encouraging upgrades and expansion.
- Shift meals remain deductible, preserving a key operational tax benefit.
- Tipped workers can deduct up to $25,000 in tip income annually through 2028.
- Hourly employees earning overtime can deduct up to $12,500 each year.
- Restaurants must improve payroll accuracy and classification to stay compliant.
- The expiration of WOTC and EZ credits may increase labor costs in underserved areas.
The passage of the One Big Beautiful Bill Act (OBBB) offers a blend of tax relief, workforce incentives and operational flexibility that impacts how restaurants manage their finances and plan for growth. Signed into law on July 4, 2025, the legislation builds on the foundation laid by the Tax Cuts and Jobs Act (TCJA) of 2017, while addressing several long-standing concerns specific to food service businesses.
Benefits and Opportunities for Restaurants
The legislation brings meaningful financial relief, particularly for operators structured as pass-through entities. The permanent extension of the Qualified Business Income (QBI) deduction ensures that partnerships and S-corporations, which make up the majority of restaurant ownership structures, can continue to benefit from a 20 percent deduction on eligible income. This change alone is expected to improve cash flow and reduce effective tax rates, allowing operators to reinvest in staffing, technology and expansion.
The bill also reinstates 100 percent bonus depreciation for qualified property placed in service after Jan. 19, 2025, meaning restaurants may now fully expense capital investments (e.g., kitchen equipment, furniture, and leasehold improvements, etc.) in the year they are purchased. Combined with an increase in the Section 179 deduction limit to $2.5 million, small and mid-sized operators have considerable opportunities for modernization and growth.
One of the most welcomed changes for restaurant owners is the exception added for the deductibility of employee shift meals. Under the original provisions of the TCJA, the deduction for meals provided to employees for the convenience of the employer was set to expire in 2026. The OBBB reverses this, allowing restaurants to continue deducting the cost of shift meals provided to staff. This change not only preserves a valuable tax benefit but also acknowledges the unique nature of restaurant operations, where feeding staff during shifts is both customary and operationally necessary.
Beyond the operator-level benefits, tipped workers are now eligible to deduct up to $25,000 of tip income annually from their federal taxes through 2028, provided their adjusted gross income (AGI) falls within specific thresholds. This deduction begins to phase out at an AGI of $150,000 for single filers and $300,000 for those married filing jointly. Similarly, hourly employees earning overtime pay under the Fair Labor Standards Act can deduct up to $12,500 annually. These provisions are designed to improve take-home pay and enhance the appeal of restaurant jobs in a competitive labor market.
New Compliance Responsibilities
The benefits and opportunities of the OBBB come with new accounting and compliance responsibilities for restaurants. Employers must ensure accurate classification of tipped occupations and overtime earnings, as well as proper reporting on W-2s and payroll systems. While the Internal Revenue Service (IRS) is expected to issue further guidance, restaurants should still maintain proactive documentation and internal controls to proactively avoid misreporting and safeguard eligibility.
The OBBB also reinstates the EBITDA-based limitation on business interest deductions under Section 163(j), which is particularly relevant for restaurant groups with significant debt financing. By allowing interest deductions based on EBIDTA, the legislation provides greater flexibility, but also requires careful calculation and documentation to remain compliant.
Expirations of Staffing Credits
Under the OBBB, both the Work Opportunity Tax Credit (WOTC) and Empowerment Zone Credit (EZ), both widely used in the restaurant industry to support hiring in underserved communities, were not extended. The WOTC provides a federal tax credit of up to $9,600 per eligible employee for hiring individuals from certain underserved populations, while the EZ credit offers up to $3,000 per employee annually for restaurants that hire individuals who live and work in designated low-income communities, which has helped restaurants operate in economically disadvantaged areas by offsetting wage costs and reinvesting in local communities. Restaurants could see immediate impact on their staffing models as well as higher labor costs in certain geographic areas.
Windham Brannon’s Restaurant Professionals Can Help
While the OBBB offers a meaningful boost to the restaurant industry, both in terms of financial relief and workforce support, it also demands a renewed focus on accounting accuracy, tax planning and strategic compliance. For restaurant leaders, the path forward will require not only an understanding of the new provisions but also a commitment to integrating them into daily operations and long-term planning. Windham Brannon’s Restaurant Practice can help your restaurant operation strategically plan for both the opportunities and challenges ahead – for more information, contact your Windham Brannon advisor today, or reach out to Maggie Wise and Andrew Jones.
