The One Big Beautiful Bill Act (the “Act”), signed into law on July 4, 2025, contains several provisions affecting employee benefits and executive compensation. Some of the key changes include the following:
1. Health Savings Accounts (HSAs)
- Beginning January 1, 2026, primary care services provided for a fixed periodic fee will not disqualify an individual from HSA eligibility if the aggregate fees do not exceed $150 per month ($300 for an arrangement covering more than one individual). The maximum fee is indexed for inflation.
- Bronze and Catastrophic Plans available through an Affordable Care Act Marketplace will be considered high-deductible health plans for HSA eligibility beginning in 2026.
2. Welfare and Fringe Benefits
- For tax years beginning after December 31, 2025, the dependent care flexible spending arrangement limit increases from $5,000 to $7,500.
- Effective for tax years beginning after December 31, 2025, the exclusion for bicycle commuting reimbursements is eliminated.
- The Act disallows deductions and exclusions for moving expenses beyond 2025 for most individuals but retains the deduction and/or exclusion for certain members of the Armed Forces and, under the Act, certain members of the intelligence community.
- The existing exclusion for employer reimbursement of student loan payments is now permanent. The Act also indexes the education assistance program exclusion for inflation.
3. Executive Compensation in Controlled Groups
- Effective for tax years beginning after December 31, 2025, the Act applies the $1 million deduction cap for compensation under Internal Revenue Code (Code) §162(m) across all related corporations in a control group and allocates that deduction within the control group.
- The Act expands the definition of “covered employees” for the purposes of the excise tax on excessive compensation for tax-exempt organizations under Code §4960 to include all employees (current and former) and employees of affiliated entities.
4. Employer Tax Credits
- The Act increases the credit rate for employer-provided child care credit from 25% to 40% of employer qualified child care expenses (or 50% for small businesses). It further raises the maximum credit to $500,000 (or $600,000 for eligible small businesses) and indexes for inflation.
- The Act makes permanent and expands eligibility for paid family and medical leave credit to include premiums paid to insurance providers.
5. Employee Retention Tax Credit (ERTC)
- ERTC promoters who assist in understatements of tax or fail due diligence will be subject to penalties.
- The Act extends the statute of limitations for the IRS to make ERTC assessments to six years from the later of (i) the date the original return was filed; (ii) the date the return was treated as filed; or (iii) the date on which the claim or refund for the ERTC was made.
