On July 4, 2025, the One Big Beautiful Bill Act, 2025 (OBBBA) was enacted. The OBBBA is far-reaching and employers may need to do a lot of work to bring their systems and procedures into compliance. Some of the changes in the OBBBA affect employer-provided benefits, such as high-deductible health plans (HDHPs), health savings accounts (HSAs), dependent care flexible spending accounts (DCFSAs), fringe benefits, and executive compensation. Below is a summary of these provisions:
HDHP Deductibles and Telehealth Expenses
Effective for plan years beginning in 2025, employees with HDHPs have first-dollar coverage of most telehealth services, before meeting their HDHP deductible. This applies even if the telehealth service is not related to preventive care.
HSA Eligibility and Fund Usage
Effective January 1, 2026, employees with direct primary care service arrangements will no longer be disqualified from contributing to an HSA. Furthermore, fees for direct primary care service arrangements can be reimbursed up to $150/month for an employee and $300/month for the employee and/or their spouse and dependents. These amounts will be indexed for inflation.
DCFSA Increased Limit
For taxable years after 2025, the DCFSA limit is increased to $7,500 (from $5,000/year). Unfortunately, this limit is not indexed for inflation.
Modification of Fringe Benefits
For taxable years after 2025, reimbursements for bicycle commuting will no longer be excluded from income for employees. Furthermore, moving expense exclusions will no longer be available for most taxpayers.
Executive Compensation Changes
Under current law, an excise tax is imposed on compensation in excess of $1M paid to a limited number of highly compensated employees (HCEs) by a tax-exempt organization. For taxable years after 2025, all compensation earned by all members of a controlled group is included for excise tax purposes. Furthermore, all HCEs in an organization are now subject to the excess compensation rule.
Next Steps
Employers will want to review their employee benefit plans to determine if the OBBBA changes impact those plans and if so, evaluate what further steps to take, such as updating payroll systems, notifying employees, coordinating with their tax advisers, and monitoring future IRS guidance regarding these changes.
