On July 4, President Donald Trump signed into law the One Big Beautiful Bill Act (OBBB), a sweeping piece of legislation that includes several provisions impacting employer-sponsored health and welfare benefit plans. The OBBB addresses key areas such as telehealth coverage under high-deductible health plans (HDHP), student loan repayment assistance, transportation fringe benefits and dependent care assistance programs. These changes will affect plan design, tax treatment and administrative compliance for employers beginning in 2025 and 2026.
Key Health and Welfare Plan Provisions
Permanent Safe Harbor for Telehealth Services
What Changed: The OBBB permanently extends the safe harbor that permits HDHPs to cover telehealth services before the plan’s deductible is met. This codifies temporary COVID-era relief into a permanent provision under the Internal Revenue Code (IRC).
Effective Date: Plan years beginning after Dec. 31, 2024.
Practical Impact: Employers sponsoring HDHPs may now continue offering first-dollar telehealth coverage for participating employees. This eliminates previous uncertainty and provides greater flexibility in benefit design.
Permanent Tax-Free Student Loan Repayment Assistance
What Changed: The OBBB permanently allows employers to provide tax-free student loan repayment assistance under IRC § 127 educational assistance programs. Additionally, the $5,250 annual limit will be indexed for inflation starting in 2027, with increases rounded to the nearest $50.
Effective Date: Payments made after Dec. 31, 2025.
Practical Impact: Employers can now confidently incorporate student loan repayment programs as part of their broader education assistance benefit strategy. The inflation adjustment helps preserve the long-term value of the benefit for both employers and employees.
Repeal of Bicycle Commuting Tax-Free Reimbursements
What Changed: The OBBB eliminates tax-free reimbursements for qualified bicycle commuting reimbursements under IRC § 132(f). It also modifies the base year for inflation adjustments for other transportation fringe benefits.
Effective Date: Taxable years beginning after Dec. 31, 2025.
Practical Impact: Employers offering tax-free bicycle commuting reimbursements must eliminate this benefit before Jan. 1, 2026. While other transportation fringe benefits remain in place, employers should review and update plan documents, benefit materials and payroll systems accordingly.
Increased Tax-Free Dependent Care Assistance Limit
What Changed: The OBBB increases the annual tax-free limit for dependent care assistance programs – such as dependent care flexible spending accounts (FSAs) — under IRC § 129 from $5,000 to $7,500 (or from $2,500 to $3,750 for married individuals filing separately). The new $7,500/$3,750 limits are not indexed for inflation and will remain a fixed statutory amount.
Effective Date: Taxable years beginning after Dec. 31, 2025.
Practical Impact: This enhancement allows employers to offer a more competitive and valuable dependent care benefit. Employers should consider updating their cafeteria plans and communications to reflect the increased limits.
Implementation Considerations
By Jan. 1, 2026, employers should eliminate any bicycle commuting reimbursement programs and update payroll systems and employee communications accordingly. For 2026 plan years, sponsors of high-deductible health plans should consider whether to add or expand first-dollar telehealth coverage now that the safe harbor is permanent. Employers should also review dependent care assistance programs to reflect the increased $7,500/$3,750 limits. These changes may require amendments to plan documents, summaries of material modifications to summary plan descriptions and enrollment materials. Employers are encouraged to communicate benefit updates clearly to employees through open enrollment guides and other participant-facing communications.
