On May 12, 2025, the House Ways and Means Committee released “The One, Big, Beautiful Bill” containing its draft tax legislation (the OBBB), which includes a number of items that may be of particular interest to US employers and the benefit plan industry. The OBBB will likely continue to evolve as the bill progresses through the legislative process. Below is a brief overview of some of the most impactful employee benefits items.
Fringe Benefits
The Tax Cuts and Jobs Act of 2017 (TCJA) temporarily eliminated income tax exclusions for qualified bicycle commuting and moving expense reimbursements. Under current law, these two benefits are set to return beginning in 2026. The OBBB would permanently eliminate both of these reimbursement exclusions.
The OBBB would also increase the maximum employer credit for employer-provided child care from $150,000 to $500,000 (as well as increasing the percentages tied to receiving those credits). The OBBB also introduces a small business provision for the employer-provided child care credit, allowing qualified small businesses to receive a credit up to $600,000. This provision would enable qualified small businesses to pool resources in order to provide child care services and receive the credit. Under the OBBB, the credit would be adjusted for inflation.
The paid family and medical leave tax credit (also created under the TCJA) is currently set to expire at the end of 2025. Under the OBBB, the paid family and medical leave tax credit would be made permanent and would also be expanded to allow employers to claim the credits for a portion of the premiums paid for any paid family leave insurance .
Through the end of 2025, an employer may make non-taxable contributions toward an employee’s student loan repayments throughan educational assistance program in certain circumstances. The OBBB would make this provision permanent, allowing employers to continue to make non-taxable contributions to employee student loans through their educational assistance programs. The OBBB would also index the $5,250 income exclusion limit for an educational assistance program to inflation.
Health and Welfare
The OBBB addresses employer-sponsored health reimbursement accounts (HRAs) in a couple of ways. First, it would codify the regulations allowing employers to offer Individual Coverage HRAs (ICHRAs) which can be used to purchase coverage on the individual market. The OBBB would rename these from ICHRAs to “Custom Health Option and Individual Care Expense,” or “CHOICE” arrangements. Second, it would allow employees to fund their CHOICE arrangements through a cafeteria plan and then use those funds to pay premiums for coverage on the exchanges. Third, the OBBB would introduce temporary credits for small businesses (fewer than 50 employees) that offer coverage through CHOICE arrangements for their employees ($100/employee/month for the first year, and $50/employee/month for the second year).
Changes to health savings accounts (HSAs) are also included in the OBBB. The draft bill would extend HSA eligibility to those who are eligible for Medicare Part A on the basis of age (as long as they are enrolled in a high-deductible health plan [HDHP]), as well as those who are enrolled in bronze and catastrophic health plans.
Another welcome development is that the OBBB would allow employer sponsored on-site health clinics providing a variety of services such as physicals and immunizations to be fully HSA-compatible. Currently, there is no specific exception for on-site health clinics from the HSA rules. Employers have either needed to design HSA-compliant clinics by making clinic services subject to a deductible, or by designing clinic services to satisfy an exception, for example, as an excepted benefits. The OBBB would allow clinics to potentially expand their offerings without compromising participant HSA eligibility.
Other HSA-related changes would include:
- Allowing certain fitness and sport expenses (such as gym membership fees or participation/instruction in physical exercise or activity) as medical expenses for HSA purposes ($500 per individual/year and $1,000 per family/year).
- Allowing both spouses to make the $1,000 HSA catch-up contribution (available at age 55+) into the same HSA.
- Allowing employees to convert their FSA and HRA balances into an HSA (capped at applicable FSA limit for the individual or family) when employees enroll in a HDHP and become HSA eligible.
- Allowing individuals to contribute to an HSA when they are eligible, but their spouse is enrolled in an FSA.
- Increasing, and in many cases doubling, the HSA cap for individuals and families who make less than $75,000/$150,000 (and which is phased out for individuals/families who make $100,000/$200,000 annually).
- Allowing individuals to use HSAs for qualified medical expenses incurred in the 60-day period after enrollment in an HDHP if the HSA is established by the end of the 60-day period
Executive Compensation
The OBBB would amend the Section 162(m) deduction cap of $1,000,000.00 on “excess” compensation paid to certain executives of public companies, by clarifying that all companies in the controlled group are aggregated. This is generally the case already under the final regulations.
The corollary to Section 162(m) for non-profits, Section 4960, would also be expanded to apply to all employees and former employees, rather than only the top five/former top five employees. Section 4960 would also be expanded to apply to employees and former employees of for-profit companies that are related to non-profits; the scope of this provision is not entirely clear.
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The next step in the process is for the House Budget Committee to assemble the OBBB into a single bill and bring it to the floor for a vote, followed by a Senate bill, and if the Senate passes a different version (which seems likely based on statements from Senate Republicans), Senate and House committees would meet to negotiate and send amended bills to both the House and Senate for final votes.
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