On July 4th, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA). The OBBBA lays out the Trump administration’s spending priorities and tax policies for the president’s second term. Many of these priorities and policies will have a direct impact on the restaurant industry and on the people who own and operate businesses in this space.
But what kind of impact should we expect? And which provisions in this sweeping bill actually apply to our industry? At nearly 1,000 pages in length, the bill is a massive collection of provisions related to:
- Personal income taxes
- Business taxes
- Border policies
- Public programs
- Law enforcement
Just in case you don’t have time to read the whole thing, we’re taking a closer look at how the new U.S. budget affects restaurants.
An Important Disclaimer
We are not tax experts. When it comes to navigating the new rules and filing your returns, you’ll definitely want to speak to an actual tax expert.
However, we are restaurant industry veterans with a strong understanding of the issues that concern restaurant owners and operators. Below, we do our best to explain in simple terms and plain language how restaurant tax changes and budget cuts may affect your business.
We’ve broken our discussion into two basic sections on both the benefits of the spending bill and some of the challenges restaurants may face as they navigate restaurant tax changes.
5 Benefits of the New U.S. Budget for the Restaurant Business
The day before the budget bill was passed into law, National Restaurant Association (NRA) President and CEO Michelle Korsmo released a statement supporting the legislation. She said, “The bill lays the groundwork for long-term innovation, job creation, and economic growth, ensuring restaurants can continue to meet evolving consumer needs and power the U.S. economy.”
Here are a few reasons for the National Restaurant Association’s endorsement:
1. No Tax On Tips/No Tax On Overtime
The new bill includes two important provisions for restaurant workers:
- Servers and bartenders earning tips will receive a $25,000 tax deduction
- Hourly employees will receive a $12,500 tax deduction on overtime pay
Both of these deductions will remain in effect until 2028. Back of House restaurant operations consultant Dan Durkin says, “I think this is generally good for hourly employees. The exemption on overtime pay will result in restaurant workers having some extra money at no cost to the employer.”
NRA President Michelle Korsmo believes both provisions “will put cash back in the pocket of a significant number of these hard-working people and could help restaurant operators recruit additional talent.”
2. Full Tax Write-Offs For Equipment Purchases
“Some of the new rules do provide a more favorable treatment of capital investment,” says the head of Back of House, Nick Florek. “I believe this will offer relief for owners who are dealing with high operational expenses.”
For example, the new budget allows business owners to deduct 100% of what they spend on certain equipment during the current business year. In the past, businesses have been required to spread these deductions out over the lifespan of their equipment, using an accounting method called depreciation.
Dan notes that this provision will be especially helpful for “larger players, who will see a major improvement in how depreciation costs are accounted for. With the new rule, capital expense spending on large equipment purchases can be depreciated 100% in the first year. This will free up cash flow, especially for multi-units.”
3. Family and Medical Leave Tax Credits
The spending bill makes tax credits permanent for businesses that provide their employees with paid family and medical leave. These tax credits can benefit restaurants at a time when restaurant workers have come to expect better benefits and improved work life balance.
The tax credit makes it easier for restaurants to include paid family and medical leave as part of their employment packages. This may help restaurant owners offer more attractive benefits which can help improve recruitment and retention.
“I think employee-focused initiatives like this might make restaurant jobs ‘stickier,’ essentially giving people more reasons to stay in the restaurant industry long term,” says Dan.
4. Business Income Tax Deductions
The bill includes provisions for additional tax deductions aimed at supporting business owners. Owners of sole proprietorships, partnerships, LLCs, and S-corporations qualify for a 20% dedication of their qualified business income (QBI). According to the National Restaurant Association, 77% of restaurants fall into one of these categories.
This provision was scheduled to expire at the end of 2025 but the new spending bill makes this deduction a permanent part of the U.S. tax code. This means most restaurant owners will continue to see a lower tax liability, which should improve cash flow and allow for additional investment in their businesses.
5. Business Interest Expense Deduction
The bill also restores a business interest expense deduction. This provision lets restaurant owners calculate their deductions on interest payments using accounting methods called depreciation (for physical assets) and amortization (for intellectual property).
This process raises the limit for how much interest businesses can deduct from their taxable income. This provision will help restaurants and other businesses free up capital for other priorities like expanding operations, making new investments, or paying off business debts.
5 Challenges For Restaurants Due to the New U.S. Budget
The spending bill introduces a lot of new rules while simultaneously cutting funding for a number of important programs and allowing other programs to expire. Below are a few challenges that restaurant owners and operators should be prepared to navigate in 2026 and beyond.
1. Affordability Issues
Perhaps the biggest challenge for the restaurant industry will be the impact of the new bill on everyday Americans. While the new budget includes provisions that would help restaurant owners and employees, “there are other parts of the Bill that could have a pretty harsh impact on the disposable income of lower- and middle-income households,” says Dan.
Nick agrees. He points out, “Cuts to programs like SNAP [food assistance] and Medicaid [health coverage for lower-income Americans] will reduce disposable income. As a result, operators could see softer demand and a greater need to compete on value. I think this is especially true for QSRs and pizza places.”
“This would likely create sales strain for restaurants serving lower- and middle-income diners,” says Nick. Dan adds that restaurants “will be seeing a lot of price competition, discounting and promotional efforts – in other words, a continuation of the value war between fast food and casual chains.”
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2. Workforce Health Coverage
Nick also warns that these spending cuts could make it harder for restaurants to attract and retain employees. Nick points out, “Some restaurant workers rely on Medicaid for healthcare support. The cuts to Medicaid could result in more workers without coverage.”
In an industry where recruitment and retention are constant pressure points, “There may now be increased pressure on restaurants to fill the gap,” says Nick. “I believe restaurants will have to find ways of offering employee health benefits or at least find ways of helping employees access these benefits.”
Otherwise, the restaurant industry risks losing prospective employees to industries that offer more comprehensive health benefits.
3. Compliance Challenges
Though many of the restaurant tax changes in the bill will help restaurant owners, the new budget bill may add new complexity to the tax code. Restaurant owners and operators will be navigating a whole new set of regulatory conditions.
Nation’s Restaurant News reports that restaurants will likely need to handle new reporting, tracking, and monitoring rules to remain compliant. The burden will be on restaurants to make sure they understand any new rules around provisions like No Tax On Tips, and that they educate their employees on these new rules as well.
4. Logistical Uncertainty
While the No Tax On Tips provision has received a lot of press, Dan observes, “It's still not clear what this will mean or how it will impact tipped employees. The administration is saying that more information will be coming soon, but details are still light on how it will actually work.”
“One reason for this uncertainty is that this exclusion only counts on federal income tax, and not on state income taxes,” says Dan. He also points out the lack of clarity may leave the new restaurant tax changes vulnerable to loopholes.
“I have seen articles from economists warning that restaurants could start classifying new groups of employees as ‘tipped employees’ in order to restructure their wages,” says Dan. “As a side effect, this could lead to an increase in the already substantial frustration among consumers toward tip culture in hospitality.”
5. Expiring Provisions
A few of the biggest concerns for restaurant owners are issues that the budget does not address. Accounting and advisory firm GBQ says that the bill did not extend certain federal tax credits that restaurant operators commonly take. GBQ says it would be harmful to the restaurant industry if the following credits are not renewed:
- Work Opportunity Tax Credit (WOTC) provides a federal tax credit to employers that hire and train individuals facing employment barriers, such as SNAP recipients, individuals with disabilities, and qualified veterans. This credit was not included in the new budget bill.
- Empowerment Zone Credit (EZ) is given to employers who operate and employ workers in designated low-income communities. This credit was also excluded from the new budget bill.
The elimination of these credits may prevent restaurants from bringing business to underserved areas and would likely reduce employment opportunities for people in marginalized communities.
Finding Balance on the New Budget
The new spending bill will create both opportunities and challenges for restaurant owners. It’s up to us to navigate both with intelligence.
Nick offers a balanced view of the bill. He observes, “The combination of tighter consumer budgets and improved tax flexibility means restaurants will simply need to be smarter about how they operate.”
So how can we be smarter?
“I believe it all comes down to leveraging efficiency tools, managing costs carefully, and reinvesting savings into areas that make our businesses more resilient in the long term,” says Nick.
So what kinds of tools make the most sense for your restaurant? How can you get a better handle on your costs? And what kinds of investments will actually boost your business? Reach out for your free, personalized consultation with one of our in-house experts and we’ll work together to answer these questions and more.
