The One Big Beautiful Bill Act (OBBBA or the “Act”), signed into law on July 4, 2025, introduces a broad set of changes impacting employee benefits and executive compensation. This summary highlights the provisions most likely to impact employers, plan sponsors, and individuals.
Health Savings Account (HSA) Changes
- Retroactively effective for plan years beginning after December 31, 2024, the OBBBA permanently amends Internal Revenue Code (IRC) §223 to allow High-Deductible Health Plans (HDHPs) to offer pre-deductible (first-dollar) coverage for telehealth services without affecting eligibility for HSAs. This rule was initially permitted temporarily during the Covid-19 pandemic.
- Effective January 1, 2026, the Act also amends IRC §223 to allow HSA owners to participate in certain Direct Primary Care (DPC) arrangements. To qualify, the DPC arrangement must provide only primary care services through a primary care practitioner and charge no more than $150/month for individual coverage or $300/month for family coverage (adjusted for inflation). Coverage will be disqualifying, however, if it includes general anesthesia, certain prescription drugs other than vaccines, or lab services not typically administered in ambulatory primary care.
- Effective January 1, 2026, individuals enrolled in Bronze or Catastrophic health plans, may contribute to HSAs. Bronze and Catastrophic health plans are low-cost options available to participants purchasing health insurance through the Affordable Care Act Marketplace.
Education Incentives
Student Loan Repayment Assistance
Under amended IRC §127, the OBBBA makes permanent the tax exclusion for employer-paid student loan repayment assistance, which allows employers to make up to $5,250 per year in tax-free payments (indexed for inflation beginning in 2026). Keep in mind that a qualified educational assistance program must be established under a written plan and remain compliant with applicable nondiscrimination requirements.
529 Accounts
Under the OBBBA, the annual limit on tax-free 529 plan withdrawals for K-12 education increases from $10,000 to $20,000, effective for distributions made after December 31, 2025. The law also broadens the definition of qualified education expenses for K-12 education to include certain non-tuition costs, such as certain test fees and instructional materials.
“Trump Accounts” (Child Savings Accounts)
The Act introduces new child savings accounts under IRC §128, referred to as “Trump Accounts.” Eligible accounts for U.S. citizens born between January 1, 2025, and December 31, 2028 will receive a one-time $1,000 government seed contribution. Annual contributions are capped at $5,000 (indexed for inflation), with employers permitted to contribute up to $2,500 annually per child. The funds become available to the child the year in which the child turns 18. Contributions are subject to nondiscrimination testing and must be administered under a written plan.
Dependent Care Assistance & Childcare Credit
Dependent Care FSAs
Effective for plan years beginning after December 31, 2025, the OBBBA amends IRC §129 to increase the annual pre-tax limit for Dependent Care Flexible Spending Accounts from $5,000 to $7,500 for single or joint filers, and from $2,500 to $3,750 for married individuals filing separately.
Employer-Provided Childcare Tax Credit
The Act significantly enhances the employer-provided childcare tax credit under IRC §45F, effective for expenses paid or incurred after December 31, 2025. Employers can now claim a credit equal to 40% of qualified childcare expenditures, up from 25%. The annual credit limit also rises from $150,000 to $500,000. For small businesses, the rate increases to 50%, with an annual limit of $600,000. All thresholds will be adjusted for inflation.
Paid Family and Medical Leave Credit
The OBBBA makes permanent the Paid Family and Medical Leave credit under IRC §45S, effective for tax years beginning after December 31, 2025. The credit applies to employers who provide paid leave either through direct wage payments or by paying premiums for qualifying leave insurance policies. The Act also lowers the employee eligibility threshold from one year of service to six months.
Employer-Provided Meals
The OBBBA makes permanent the 50% deduction amount for certain employer-provided meals under IRC §274, a provision originally introduced by the Tax Cuts and Jobs Act. It also provides limited relief from IRC §274(o), which disallows all deductions for employer-operated eating facilities and meals provided for the convenience of the employer starting in 2026, by creating exceptions for employers that sell food or beverages to customers and for certain fishing-industry employers.
Moving and Transportation Benefits
Transportation Benefits and Bicycle Commuting
Beginning January 1, 2026, the OBBBA permanently eliminates the tax exclusion under IRC §132(f) for employer-provided bicycle commuting reimbursements. Employers may still offer these benefits and deduct the cost as a business expense, but the reimbursements will be treated as taxable income to the employee. The OBBBA also makes permanent the elimination of the employer tax deduction, originally enacted under the Tax Cuts and Jobs Act, for the cost of providing qualified transportation fringe benefits including qualified parking and transit passes.
Moving Expense Reimbursements
The Act terminates the employer tax deduction for moving expense reimbursements under IRC §132(g). Both the deduction for employees and the exclusion for employer reimbursements are eliminated. However, an exception remains for active-duty members of the U.S. Armed Forces moving pursuant to a change in duty station, and the OBBBA extends this exception to certain intelligence community personnel.
Executive Compensation Deduction
IRC §162(m) limits the amount of compensation a public company can deduct for certain “covered employees” to $1 million annually. Beginning in 2027, previously enacted legislation expands the covered employee group to include the CEO, CFO, and the next eight highest paid employees (up from three). The OBBBA clarifies that, for tax years beginning after December 31, 2025, compensation paid to a covered employee by all members of the employer’s controlled group (i.e., certain affiliated entities), including non-publicly traded entities, must be aggregated for purposes of applying the $1 million deduction cap. Each group member must then apply the limit proportionally based on the share of compensation it pays to the employee.
