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Health care and the One Big Beautiful Bill Act: Implications of tax changes

Tax changes reshape planning for hospitals, systems, and physician groups.

August 07, 2025
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Health care Behavioral health Care facilities
Business tax Tax policy Hospitals & health systems Federal tax

Executive summary: Tax relief and business challenges for health care organizations

The One Big Beautiful Bill Act (OBBBA) contains a wide range of tax changes that affect both for-profit and tax-exempt health care organizations. From enhanced deductions for interest and capital investments to new limitations on charitable giving and executive compensation, the law reshapes financial planning across hospitals, systems and physician groups. The OBBBA also introduces structural changes to Medicaid that may increase the volume of uninsured patients and complicate eligibility determinations.

This article breaks down the implications of key provisions and offers strategic insights for health care leaders navigating compliance, capital planning, community benefit obligations and other business challenges.

Health care organizations face a combination of enhanced tax benefits and business challenges stemming from tax provisions in the OBBBA. Now that there is a federal tax policy roadmap for the foreseeable future, here is a closer look at key OBBBA tax items and their implications for for-profit and tax-exempt health care organizations.

Business interest expense limitation

The OBBBA returns to the original Tax Cuts and Jobs Act calculation for business interest expense limitations. It allows the addback for depreciation, depletion and amortization to the adjusted taxable income calculation, effectively allowing deductions up to 30% of earnings before interest, taxes, depreciation and amortization (EBITDA). This provision is permanent.

Learn more about the technical changes to the business interest expense limit under section 163(j) and the implications for businesses.

What it means for health care organizations

Health care organizations gain greater flexibility in managing debt-related costs, particularly when financing new facilities or expanding services. As deal activity and strategic partnerships remain robust, the more favorable interest expense deduction lowers the cost of consolidation, supports essential improvements, and may reduce taxable income for certain investors.

For private-equity-backed groups, the change eases pressure to generate cash for tax distributions, preserving capital for operations and enabling more strategic use of leverage across the sector. Organizations should model the multiyear impact across their capital structure and deal pipeline, including effects on debt capacity, refinancing strategies, and the timing of capital improvements.

Bonus depreciation

The OBBBA introduces significant changes to 100% bonus depreciation, making it permanent for most property acquired after January 19, 2025, and establishing a new temporary allowance for qualified production property.

Learn more about the technical changes to bonus depreciation and implications for businesses.

What it means for health care organizations

Health care organizations are upgrading facilities, equipment and technology to enhance the quality and consistency of patient care. When it comes to acquiring fixed assets and placing them into service, 100% bonus depreciation should make these types of improvements more affordable.

Plus, because the OBBBA enables taxpayers to add depreciation to a more favorable business interest deduction, the restoration of bonus depreciation is even more beneficial. Across the industry, this should support modernization efforts and long-term planning in an increasingly margin-sensitive environment.

These tax benefits enable more strategic timing of capital investments, especially for health care systems planning large-scale improvements or expansions. To that end, organizations should reassess capital planning strategies to recover costs for qualifying investments tied to facility upgrades, medical equipment, and IT infrastructure.

State and local tax deduction limitation (SALT cap) and pass-through entity tax (PTET) deduction

The OBBBA raises the SALT cap to $40,000 beginning in 2025 through tax year 2029, after which it will revert to $10,000. The limitation is phased down for taxpayers with modified adjusted gross income (AGI) over $500,000 for the same period. Both the limitation and the modified AGI threshold are increased by 1% each year through 2029.

Meanwhile, the OBBBA makes no changes to the deductibility of PTET by a pass-through entity, what types of taxpayers can make state PTET elections, or the ability of taxpayers to make state PTET elections.

The final legislation omitted some proposals that would have severely restricted the ability of certain businesses, including doctors’ practices that are relatively small, to benefit from PTET regimes. The omitted proposals could have had significant negative impacts on after-tax cash flows for business owners.

Learn more about the technical changes to the SALT cap and the implications for taxpayers.

What it means for owners of health care organizations

Owners have a window to reduce federal tax liability on state income taxes. This is especially relevant for partners and shareholders in physician groups, specialty practices, and other pass-through entities with high personal income. Meanwhile, the unchanged deductibility of PTET remains a valuable tool for managing state-level tax exposure.

Exclusions for qualified small business stock (QSBS)

The OBBBA expands the gain exclusion rules for the sale of qualified small business stock (QSBS), mainly through the following three changes applicable to QSBS issued after July 4, 2025:

  • Provides a tiered exclusion: Allows taxpayers a 50% exclusion for shares held more than three years, a 75% exclusion for shares held more than four years, and a 100% exclusion for shares held more than five years.
  • Increases per-issuer limitation: Raises the per-issuer gain exclusion cap from $10 million to $15 million (indexed for inflation) while still leaving available the 10-times-basis limit if greater.
  • Increases corporate-level gross asset threshold for qualification: Increases the gross asset threshold from $50 million to $75 million (also indexed for inflation).

Learn more about the technical changes to the exclusions for small business stock and the implications for businesses.

What it means for health care organizations and investors in them

Although direct health services may not qualify under the expanded QSBS rules, the law’s vague definition of “health” opens the door for adjacent businesses—like device distributors and digital health platforms—to benefit. For these organizations, structuring as C corporations could unlock meaningful tax advantages.

The higher asset and exclusion thresholds also make it easier for private equity to back larger health care startups, potentially accelerating deal flow and reshaping exit strategies for innovative ventures.

Research and development expenses

The OBBBA makes domestic R&D costs fully deductible on a permanent basis, starting with 2025. Foreign R&D spending is still amortized over 15 years.

Qualified small businesses may be able to apply full expensing retroactively to accelerate deductions for expenses currently being amortized. And larger businesses can elect to accelerate remaining amortizable basis into the first or first two tax years starting with 2025.

Learn more about the technical changes to the tax treatment of R&D expenses and the implications for businesses.

What it means for health care organizations

Health care organizations investing in software platforms, clinical analytics, or digital infrastructure can now deduct qualifying R&D costs immediately, improving after-tax ROI and budgeting flexibility.

Small businesses may retroactively apply the provision to prior years, unlocking potential refunds, but they must navigate complex elections and amended filings. Larger businesses that make acceleration elections can do so without impacting their interest deductions, and all businesses may also need a formal method change for immediate expensing in 2025 and forward.

Clean energy tax credits and incentives

The OBBBA preserves the refundable clean energy credit (direct pay) for tax-exempt entities. However, because the OBBBA curbs many clean energy credits—including ones related to wind, solar, clean hydrogen, and advanced manufacturing—the law diminishes clean energy incentives for tax-exempt organizations similarly to how it affects taxable entities.

An additional change worth noting for health care organizations: The OBBBA terminates the section 179D deduction for energy-efficient commercial buildings for property whose construction begins after June 30, 2026.

Learn more about the technical changes to clean energy tax credits and incentives and the implications for businesses.

What it means for health care organizations

For hospitals, clinics and other providers planning capital-intensive projects, OBBBA changes to clean-energy tax credits and incentives could materially affect the economics of energy-efficient design, especially for large-scale renovations or new construction. Notably, termination of the deduction for energy-efficient commercial buildings removes a long-standing incentive that has helped health care organizations offset the cost of sustainable infrastructure upgrades.

Health care leaders may need to accelerate timelines for qualifying projects or explore alternative incentives to preserve the financial viability of energy-related investments.

Charitable giving limitations

The OBBBA introduces a 1% floor for corporate charitable deductions and a 0.5% adjusted gross income (AGI) floor for individuals, meaning only contributions exceeding those thresholds are deductible. Combined with how the OBBBA caps the value of itemized deductions for high-income donors, these changes may dampen philanthropic giving.

For a sense of the philanthropic impact: The nonpartisan Joint Committee on Taxation estimates that the new floors for corporate and individual charitable deductions will save the federal government $16.6 billion and $63.1 billion, respectively, between 2025–2034.

Learn more about charitable giving limitations and other OBBBA tax changes affecting exempt organizations.

What it means for tax-exempt health care organizations

For health care organizations, especially tax-exempt hospitals and academic medical centers, these changes could reduce contributions to affiliated foundations and community programs. While the OBBBA reinstates a modest above-the-line deduction for nonitemizers, its limited scope may not offset the broader decline in donor incentives.

Across health care, the new rules complicate tax planning for charitable giving and may prompt organizations to reevaluate fundraising strategies and donor engagement models.

Complying with requirements for tax-exempt status

The OBBBA does not change the section 501(r) requirements for tax-exempt hospitals to maintain tax-exempt status. However, the legislation introduces several structural changes to Medicaid that are expected to reduce enrollment and increase administrative complexity, indirectly affecting section 501(r) compliance. These include new work requirements, stricter income and immigration verification protocols, and the repeal or suspension of prior regulations that streamlined eligibility and enrollment.

For example, the law imposes a moratorium on implementing rules that would have simplified Medicaid and Children’s Health Insurance Program (CHIP) enrollment, and it restricts federal reimbursement for care provided to certain noncitizens. The nonpartisan Congressional Budget Office estimates that the OBBBA will increase by 10.9 million the number of people without health insurance in 2034.

What it means for tax-exempt health care organizations

The OBBBA’s Medicaid policy changes may lead to a rise in uninsured patients and more burdensome eligibility workflows, especially for safety-net hospitals and systems serving populations that heavily rely on Medicaid.

For tax-exempt hospitals, section 501(r) compliance remains a critical focus, particularly as organizations deepen their outreach efforts during community health needs assessments (CHNAs). These initiatives not only help uncover complex eligibility challenges and uncompensated care burdens but also serve as a cornerstone for comprehensive community benefit reporting.

By actively engaging with their communities, hospitals can better tailor financial assistance programs to local health priorities and reinforce their commitment to equitable care delivery.

To support patients navigating evolving eligibility requirements, organizations can strengthen community outreach and education, revise financial assistance policies, and invest in screening tools and staff training. Proactive coordination with state Medicaid offices is also essential to manage implementation timelines and ensure ongoing compliance.

Overtime wages

The OBBBA creates a new individual income tax deduction for qualified overtime pay. Employers will need to consider wage eligibility, reporting requirements, and implications for payroll administration.

The “No tax on overtime” provision authorizes eligible individual workers to deduct qualified overtime pay from their federal taxable income for 2025–2028, but Social Security and Medicare taxes still apply. Thus, employers will still have to withhold employment taxes for their employees who receive overtime.

Learn more about the technical changes to deductions for overtime wages and the implications for businesses.

What it means for health care organizations

Hospitals and long-term care facilities with large hourly workforces may need to update their payroll systems to track and report overtime separately on Form W-2. While the deduction does not exempt overtime from Social Security or Medicare taxes, it could improve net take-home pay for clinical and support staff, potentially aiding retention.

Employers must assess how their timekeeping and compensation systems align with federal and state definitions of “qualified overtime” to ensure compliance and avoid reporting mismatches.

Excise tax on excess compensation

The OBBBA expands the definition of “covered employees,” potentially increasing an organization’s tax liability.

Subject to the existing exceptions (e.g., remuneration associated with the provision of medical services), beginning in calendar year 2026, remuneration paid to all current and former employees with more than $1 million in remuneration will be subject to the excise tax. Under prior law, the excise tax applied to remuneration paid to the top five remunerated employees from 2018 through 2025. And if someone who was once in the top five was no longer in it, they were still considered a covered employee.

Learn more about the excise tax on excess compensation and other OBBBA tax changes affecting exempt organizations.

What it means for health care organizations

This broader definition increases the risk of triggering the 21% excise tax, particularly for tax-exempt hospitals, academic medical centers, and systems with complex executive structures or generous severance arrangements. While compensation for medical services remains exempt, the expanded scope introduces new compliance complexity and potential financial exposure for roles that blend clinical and administrative duties.

Health care leaders and organizations should assess their compensation structures to identify at-risk positions, model potential tax liabilities, and consider governance adjustments to mitigate exposure to the excise tax.

Increase in the endowment excise tax for educational institutions

The OBBBA introduces a tiered rate structure that may significantly raise the endowment excise tax for certain educational institutions, introducing 4% and 8% tax rates while broadening the definition of taxable assets.

Learn more about the endowment excise tax for educational institutions and other OBBBA tax changes affecting exempt organizations.

What it means for tax-exempt health care organizations

For academic medical centers affiliated with private universities, this change could increase tax exposure on investment income, student loan interest, and federally subsidized royalties. Beginning with the 2027 filing season, institutions will report tuition-paying and full-time equivalent student counts on Form 990, adding complexity to compliance.

The provision may prompt health care organizations to reevaluate endowment strategies and asset allocations, especially organizations balancing mission-driven goals with investment performance.

Adapting to OBBBA changes: Next steps for health care organizations

OBBBA tax provisions represent significant opportunities for health care organizations, but they come with eligibility rules and planning considerations. Companies can work with their tax advisor to align their business objectives to OBBBA changes by taking the following steps:

  • Talk to your tax advisor to assess how business tax provisions align with your business objectives.
  • Review your capital investment, R&D and financing plans to align with the new incentives.
  • In any transaction, work with an M&A specialist on either the buy- or sell-side when material attributes exist on the target’s balance sheet.
  • Model your tax position under the new rules to identify savings opportunities. Leveraging tax technology can enhance modeling precision, streamline compliance workflows, and improve visibility across capital, R&D, and international tax positions—ultimately supporting more agile and informed decision-making.

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