On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (the Act), Public Law 119-21. While the Act contains several tax and law changes, this article focuses on the employee benefits provisions within the Act. For more information on other parts of the Act, please see this Ice Miller e-alert.
Fringe Benefits
Changes to qualified transportation fringe benefits (Section 70112)
Effective for tax years beginning after December 31, 2025, the Act eliminates the income exclusion for qualified bicycle commuting reimbursements. The Act also changes the inflation adjustment to the income exclusion limit for all qualified transportation fringe benefits under Internal Revenue Code (Code) Section 132(f).
IM INSIGHT: This is a permanent removal of the income exclusion for qualified bicycle commuting reimbursements which was suspended under the Tax Cuts and Jobs Act of 2017 through 2025. These reimbursements can still be offered by employers, but only on a taxable basis.
Changes to qualified moving expenses (Section 70113)
Effective for tax years beginning after December 31, 2025, the Act eliminates the deduction for qualified moving expenses under Code Section 217 and the income exclusion for qualified moving expense reimbursements under Code Section 132(g), except for certain members of the United States Armed Forces and the intelligence community.
IM INSIGHT: Other than the added exception for certain members of the intelligence community, this makes permanent the suspensions that were put in place under the Tax Cuts and Jobs Act of 2017 through 2025.
Expansion of exclusion for employer payment of student loans (Section 70412)
Effective for payments made after December 31, 2025, the Act makes permanent the Code Section 127 income exclusion for employer reimbursement of employee student loans under an educational assistance program. The Act also adds an inflation adjustment to the $5,250 exclusion limit under Code Section 127.
IM INSIGHT: This makes permanent the popular Tax Cuts and Jobs Act exclusion that would have otherwise sunset on December 31, 2025. Employers may need to amend their educational assistance program documents per these changes.
Increase of dependent care assistance program maximums (Section 70404)
Effective for tax years beginning after December 31, 2025, the maximum amount of the Code Section 129 income exclusion for dependent care assistance reimbursed under a dependent care assistance program (DCAP) has been increased from $5,000 to $7,500 (and from $2,500 to $3,750 if married filing separately).
IM INSIGHT: The DCAP dollar limit was not (and is still not) indexed for inflation, so this is a welcome adjustment as child care expenses continue to increase. Employers may need to update plan materials to communicate this higher limit during the next open enrollment period and will need to consider how the increase might impact non-discrimination testing.
Tax Credits
Enhancement of employer-provided child care credit (Section 70401)
Code Section 45F provides a tax credit to an employer that provides child care services to its employees. Effective for amounts paid or incurred after December 31, 2025, the amount of the credit has been increased from 25 percent to 40 percent of qualified child care expenditures (50 percent in the case of eligible small businesses). The Act also increases the maximum credit amount from $150,000 to $500,000 ($600,000 in the case of eligible small businesses) and adds an inflation adjustment for this amount. Additionally, the Act makes small additions to what qualifies as qualified child care expenditures and qualified child care facilities.
Extension of paid family leave tax credit (Section 70304)
Effective for tax years beginning after December 31, 2025, the Act extends the business tax credit for employers that voluntarily offer 12 weeks of paid family and medical leave to their workers. The credit increased from 12.5 percent to 25 percent of the amount of wages paid to qualifying employees during the leave period, up to 12 weeks for any employee for the tax year. The Act provides that the employer can choose a credit for the applicable percentage of the insurance premiums that the employer pays for paid family and medical leave coverage instead of on wages paid.
IM INSIGHT: This makes permanent the Tax Cuts and Jobs Act of 2017 exclusion that would have otherwise ended on December 31, 2025, after multiple extensions.
Executive Compensation
Expansion of excise taxes on excess tax-exempt organization compensation (Section 70416)
Effective for tax years beginning after December 31, 2025, the Code Section 4960 excise tax on compensation in excess of $1,000,000 and certain excess parachute payments has been expanded to cover all employees and all former employees of a tax-exempt organization or any predecessor of such an organization. Prior to this change, Code Section 4960 was limited to only the five highest compensated employees of the tax-exempt organization for the tax year (and former employees who previously fell into this group).
IM INSIGHT: Tax-exempt organizations with employees who earn $1 million or more may have increased tax liability under this expanded provision, particularly due to severance agreements. However, beginning in 2026, organizations will no longer need to track the top highest paid employees.
Controlled group rules for the limitation of deduction for publicly held corporation compensation (Section 70603)
Effective for tax years beginning after December 31, 2025, the Act adds controlled group aggregation and allocation rules for purposes of the deduction limit on compensation in excess of $1,000,000 to certain employees of publicly held corporations under Code Section 162(m). A “controlled group” for this purpose means a group treated as a single employer under Code Sections 414(b), (c), (m), or (o).
IM INSIGHT: In general terms, a controlled group is defined as a group of trades of businesses that are sufficiently related through common ownership and/or services performed as to be treated as one employer under a complex set of rules under the Code. The controlled group rules were generally designed to prevent avoiding certain tax liabilities (or getting certain additional tax benefits) through the use of creative ownership structures.
Health Plans and Coverage
Changes to ACA premium tax credits (Sections 71301-71305)
The Patient Protection and Affordable Care Act (ACA) instituted a premium tax credit to help individuals who were not eligible for Medicare or Medicaid and who are not offered coverage by their employer to pay for individual market coverage purchased through the Exchange. The Act makes several changes to these ACA premium tax credits:
- Effective for tax years beginning after December 31, 2027, excludes certain aliens who are lawfully present in the United States but who fail to satisfy certain immigration requirements from receiving an ACA premium tax credit.
- Effective for tax years beginning after December 31, 2025, provides that an ACA premium tax credit is no longer available for a lawfully present alien with a household income below the federal poverty line but who is ineligible for Medicaid.
- Effective for tax years beginning after December 31, 2027, requires the Exchange to annually verify an individual’s eligibility for advance payment of the ACA premium tax credit and cost sharing reductions through enrollment information provided by the individual and prohibits passive reenrollment.
- Effective for tax years beginning after December 31, 2025, eliminates the availability of the ACA premium tax credit for individuals who enroll during special enrollment periods due to changes in the individual’s expected household income.
- Effective for tax years beginning after December 31, 2025, eliminates limitations on liability for excess advance ACA premium tax credits made to individuals with a household income below 400 percent of the federal poverty level.
IM INSIGHT: If individuals lose ACA premium tax credits, they may instead seek enrollment in employer sponsored plans that could increase plan costs or choose to go without coverage if not eligible for employer coverage or it is too costly. This could result in a decline of the overall health of an employer’s work population.
Permanent extension of telehealth relief for high deductible health plans (Section 71306)
The Act extends a safe harbor that permits a high deductible health plan (HDHP) to cover telehealth and other remote care services prior to the deductible being satisfied, allowing participants to remain HSA eligible. This provision is retroactively effective for plan years beginning after December 31, 2024.
IM INSIGHT: This is a welcome permanent and retroactive extension of the popular COVID-era relief. Previously, the relief was time-limited with the most recent iteration expiring for plan years beginning after January 1, 2025, causing much uncertainty earlier this year. Employers that have been charging HDHP participants fair market value for telehealth services this year can choose to reimburse participants for those charges.
Inclusion of bronze and catastrophic individual market plans as HDHPs (Section 71307)
Effective for months beginning after December 31, 2025, bronze and catastrophic plans available in the individual market on an Exchange are treated as HDHPs. This means that individuals who purchase such bronze and catastrophic plans from an Exchange will be eligible to contribute to an HSA for each month they are covered by such plans and do not have other non-HDHP disqualifying coverage.
IM INSIGHT: Bronze and catastrophic plans are treated as HDHPs regardless of their deductible levels and out-of-pocket maximums.
Treatment of direct primary care service arrangements (Section 71308)
Effective for months beginning after December 31, 2025, a direct primary care service arrangement will not be treated as disqualifying coverage that renders an HDHP participant HSA-ineligible. A “direct primary care service arrangement” is defined under the Act to mean an arrangement under which an individual is solely provided primary care services by primary care practitioners for a fixed periodic fee of no more than $150 per month, or $300 per month if more than one person is covered (these amounts are subject to inflation adjustment). Primary care services do not include procedures that require general anesthesia, prescription drugs (other than vaccines), and laboratory services that are not provided in a primary care setting.
IM INSIGHT: Generally, health insurance premiums cannot be paid for by an HSA. However, the Act makes the cost of coverage under a direct primary care service arrangement a medical expense, and thus the periodic fees for a direct primary care service arrangement can be paid for by an HSA.
Savings Accounts
Creation of Trump accounts (Section 70204)
The Act creates a new type of tax-favored account called a Trump account effective for tax years beginning after December 31, 2025. A Trump account must be created for the exclusive benefit of an individual who has not yet attained age 18.
The contribution limit for a calendar year is $5,000 (indexed for inflation), although this limit does not apply to certain rollover contributions from another Trump account, certain contributions made by governmental and tax-exempt Code Section 501(c)(3) entities, and contributions made under the contributions pilot program (see below). Employers can make contributions to Trump accounts of employees or their dependents of up to $2,500 per year (indexed for inflation) that are excluded from income at the time of contribution.
Prior to the account beneficiary turning age 18, distributions from a Trump account are prohibited (with limited exceptions) and available investments are limited to certain indexed, low-fee funds. A Trump account is generally treated as a traditional individual retirement account (IRA) for tax purposes.
The Act also creates the Trump account contribution pilot program under which a one-time $1,000 credit will be made to the Trump account of all United States citizens born after December 31, 2024 and before January 1, 2029.
IM INSIGHT: Employers will need to consider whether to make contributions to Trump accounts based on their workforce and, if so, adopt a written plan document and comply with non-discrimination rules. 529 plans may offer more tax benefits if the savings are intended to pay education expenses.
Expansion of expenses eligible under the 529 plan (Sections 70413-70414)
Effective for distributions made after July 4, 2025, the Act expands on what constitutes a qualified higher education expense under a 529 plan to include (i) additional expenses related to elementary or secondary school enrollment, such as curriculum, books, online education, certain tutoring, certain test fees, and certain educational therapies and (ii) certain post-secondary credentialing and career training expenses. Effective for tax years beginning after December 31, 2025, the Act increases the limit on the amount of tuition expenses for elementary or secondary public, private, or religious school enrollment that can count as qualified higher education expenses, from $10,000 to $20,000.
IM INSIGHT: The Act makes 529 plans more attractive to individuals in expanding what expenses qualify for tax-free payment, including a significant expansion with respect to elementary and secondary school enrollment expenses.
Extension of increased limitation on contributions to ABLE accounts (Sections 70115-70117)
Effective for contributions made after December 31, 2025, the Act makes permanent the additional ABLE account contributions provided under the Tax Cuts and Jobs Act of 2017 for employed individuals with disabilities and adds an additional inflation adjustment to the regular contribution limit. Effective for tax years beginning after December 31, 2026, the Act further increases the annual contribution to ABLE accounts eligible for a Saver’s Credit from $2,000 to $2,100, with a maximum tax credit of $1,050, and makes the Saver’s Credit permanent. Lastly, effective for tax years beginning after December 31, 2025, the Act makes permanent tax-free rollovers from 529 plans to ABLE accounts.
IM INSIGHT: The Act makes permanent several provisions which were set to expire at the end of 2025. The changes increase access to and enhance the benefits of ABLE accounts.
