One not-so-big summary of the compensation and benefits law changes in the One Big Beautiful Bill Act

• After having been left out of the initial House bill, the Act includes the long-awaited telehealth extension. The Act amends Section 223(c) of the Internal Revenue Code (Code) to permanently allow high-deductible health plans to cover telehealth “and other remote care services” on a first dollar basis while allowing participants to remain eligible for a health saving account (HSA), effective retroactive to the prior expiration date of December 31, 2024. 

• The Act also increases the dependent care assistance program (DCAP) maximum from $5,000 to $7,500 (and from $2,500 to $3,750 for married individuals filing separately) and indexes it to inflation. This change is effective January 1, 2026.

• The Act includes two additional provisions related to HSAs:
  • Individuals who are enrolled in Marketplace “Bronze” and “Catastrophic” plans will be eligible to contribute to an HSA as of January 1, 2026.
  • Beginning January 1, 2026, individuals who are otherwise HSA-eligible who are enrolled in “direct primary care” arrangements will remain HSA-eligible as long as the direct primary care fees do not exceed $150/month/individual or $300/month/family (indexed to inflation). Note that “primary care services” for purposes of this section excludes procedures that require general anesthesia, prescription drugs other than vaccines, and lab services that are not typical in a primary care setting. The Act also clarifies that monthly fees for direct primary care are HSA-qualified medical expenses (subject to the same limits).

Fringe Benefits and Executive Compensation

• The Tax Cuts and Jobs Act of 2017 temporarily eliminated income tax exclusions for qualified bicycle commuting and moving expense reimbursements. The Act permanently eliminates these reimbursement exclusions. 
• The Act increases the maximum employer credit for employer-provided child care from $150,000 to $500,000 ($600,000 for eligible small businesses), effective for amounts paid or incurred after December 31, 2025. These amounts are also subject to an inflation adjustment after 2026. The Act also increases the percentage of qualified child care expenses that can be counted towards the credit from 25% to 40% (50% for eligible small businesses).
• The employer tax credit for paid family and medical leave was made permanent and expanded to allow employers to claim the credits for a portion of the premiums paid for any paid family leave insurance. This provision is also effective for tax years beginning after December 31, 2025. 
• Through the end of 2025, employers are permitted to make non-taxable contributions towards employee student loan repayments through educational assistance programs. The Act makes this provision permanent and indexes the current $5,250 income exclusion limit to inflation after 2025. 
• The Act amends the Section 162(m) deduction cap of $1,000,000 on “excess” compensation paid to certain executives of public companies by clarifying that all companies in the controlled group are aggregated for certain purposes and providing rules for allocating the deduction between controlled group members. The Act also expands Section 4960 (the corollary to Section 162(m) for non-profits) to apply to all employees and former employees who were employed after December 31, 2016 (rather than only the top five/former top five employees). Both of these provisions are effective for taxable years beginning after December 31, 2025.

Tax Deduction for Tips and Overtime

• The Act adds a new Section 224 to the Code, which allows individuals to take a deduction for any “qualified tips” received during the taxable year. 
  • The total amount of the deduction is limited to $25,000 and is phased out by $100 for each $1,000 that an individual’s modified AGI exceeds $150,000 ($300,000 for joint returns). 
  • The provision is effective as of January 1, 2025 (retroactively applicable) and expires after 2028. 
• The Act also adds a new Section 225 to the Code, which allows individuals to take a deduction for any “qualified overtime compensation.”
  • The total amount of the deduction is limited to $12,500 ($25,000 for joint returns) and is subject to the same modified AGI phase out as qualified tips. 
  • The provision is also effective as of January 1, 2025 (retroactively applicable) and expires after 2028.
• Both qualified tips and overtime compensation continue to be subject to Form W-2 reporting and Social Security and Medicare tax withholding.

Trump Accounts

• “Trump Accounts” are a new type of tax-deferred account that can be established for children under the age of 18. These accounts are essentially traditional IRAs and, it appears, must be established by the Treasury Department.
• Contributions can be made up to $5,000 per child each year beginning 12 months after enactment of the Act until the child turns 18. The contribution limit will be indexed for inflation starting in 2027.
• Contributions to a Trump Account are not tax deductible, and distributions are generally taxed under the normal rules for traditional IRA distributions.
• All children born between January 1, 2025 and December 31, 2028 with a valid Social Security number and at least one parent with a valid Social Security number will be eligible for a $1,000 seed payment directly from the US Treasury.
• Employers may contribute up to $2,500 to their employees’ Trump Accounts, with such contributions excluded from employee income.