Benefit Changes in OBBBA (One Big Beautiful Bill Act)
The final version of the OBBBA contains a few items of note to the employee benefits community. Here are some of the details.
Telehealth Before Meeting a High Deductible Health Plan’s (HDHP) Deductible
First-dollar telehealth coverage was reinstated and made permanent beginning with plan years after December 31, 2024. This common-sense benefit saw a lot of starts and stops, beginning with the CARES Act and followed by temporary extensions (and some gaps in the law’s applicability) from CAA 2022 and CAA 2023. The OBBBA now extends first-dollar telehealth and other remote coverage options to HDHPs, even if the cause of the telehealth visit is not preventive, without causing a loss of the ability of an employer or employee to contribute to a Health Savings Account (HSA).
Kushner & Company is proud to have worked with a number of associations in pushing for this common-sense, permanent change.
Dependent Care FSA Limit Raised Starting in 2026
In 1986, Congress last set a non-indexed limit of $5,000 for dependent care benefits offered by an employer. Apparently, in the last 40 years, dependent care costs have somewhat increased (duh!), even though the allowable limit has not. The OBBBA raises the limit for plan years beginning on or after January 1, 2026 to $7,500 ($3,750 for those who are married filing separately). Unfortunately, this new limit is not indexed either. Hopefully we’ll get greater relief in something less than 40 years.
Bronze and Catastrophic Exchange-Based Plans are Now Eligible as HDHPs
By opening up Bronze-level and catastrophic plans that are available on a state- or the federal Exchange to be treated as HDHPs enables those enrollees to receive employer and/or employee HSA contributions, as long as they are:
- enrolled in that plan;
- not enrolled in Medicare Part A;
- not enrolled in a disqualified plan; and
- not claimed as a dependent on another’s current-year tax return.
Tax-Free Student Loan Repayment Assistance
In 2020, the CARES Act first enabled employers to provide up to $5,250 per year to employees for student loan repayment assistance under a qualified Secton 127 Educational Assistance plan. However, that provision was scheduled to sunset at the end of calendar year 2025, regardless of the Educational Assistance plan’s year. The OBBBA makes permanent that CARES Act provision, extending into the future beyond 2025. Note that a qualified Educational Assistance plan still requires a plan document and does come with significant nondiscrimination rules to prevent a disproportionate benefit going to key and other highly compensated employees.
This benefit can be used to pay for student loans of the employee. It can also be used to pay for student loans where the employee is legally obligated to make payments on behalf of a tax dependent, such as when a parent/employee co-signs and guarantees a student loan of a dependent child.
Enhanced Employer-Provided Child Care Credit
The OBBBA now allows and makes permanent a 40% tax credit for qualified childcare expenses provided to employees incurred on or after January 1, 2026, up to $500,000 annually. For small employers, the tax credit is increased to 50% with a higher cap of $600,000. The OBBBA defines a small employer as one with gross receipts of $31M or less. Both of these cap limits are indexed to inflation starting for expenses incurred in 2027.
Further, small employers may pool resources to jointly operate a childcare facility.
Expanded Employer Credit for Paid Family and Medical Leave
The employer credit for providing paid leave under the Family and Medical Leave Act (FMLA) is now permanent. Starting in 2026, employers may also claim a credit for a percentage of premiums paid for insurance policies that offer family and medical leave, ranging from 12.5% to 25% of premiums paid.
Updated Rules for Employer-Provided Meals
The OBBBA retains the elimination of business deductions for employer-provided meals that are excludable from employee income. However, it adds exceptions (thanks to Sen. Lisa Murkowski of Alaska, the tie-breaking vote for passage of the OBBBA) to include:
- Fishing vessels
- Fish processing vessels
- Fish tender vessels
Apparently, fish-related meal expenses are different than other employer-provided meal expenses.
Employers may still deduct the full cost of food and beverages sold to customers, including employees.
Bicycle Commuting and Moving Expense Reimbursement Exclusions
The OBBBA has permanently repealed the federal tax exclusion for bicycle commuting reimbursement as well as for reimbursing moving expenses, meaning any employer reimbursements for bicycle commuting and moving expenses are now taxable income for the employee. Note that there is an exception to the moving expense exclusion for certain members of the U.S. armed forces and the intelligence community.
Trump Accounts
Basically, Trump Accounts are IRAs intended for children. Beginning in 2026, taxpayers will be able to elect to create accounts on behalf of their dependents under the age of 18 (if no election is made for an eligible child, the Treasury Department will do so of its own accord). Contributions may be made beginning on July 4, 2026 and are generally limited to $5,000 per year from all sources (indexed for inflation). Contributions are generally after-tax and limited to years before the child reaches age 18. Additionally, children born 2025 through 2028 will receive $1,000 in seed money from the Treasury Department.
Money in Trump Accounts grow tax-deferred and must be invested in eligible investments, which are mutual funds or ETFs that track the returns of an index, like the S&P 500. Employers will be able to contribute up to $2,500 (indexed for inflation) to an account of an employee or an employee’s dependent pursuant to a written plan. This money is excluded from the income of the employee and the beneficiary of the account and employers can deduct it as a business expense. Note though, that employer contributions are included in the $5,000 yearly cap and such contributions are subject to nondiscrimination testing.
So long as the money is spent on a “qualifying purpose” after age 18, like education or a house, distributions will not be subject to an early withdrawal penalty. Withdrawals in excess of taxpayer contributions are treated as ordinary income, not capital gains.
529 Plans
529 plans, or qualified tuition plans, are tax-advantaged savings accounts that are most commonly used to save for college. The OBBBA expands the types of expenses for which 529 plans may be used. Newly allowed are expenses at elementary or secondary public, private or religious schools for things like books, testing fees and online educational materials. The OBBBA increases the amount of allowed expenses for tuition in connection with enrollment or attendance at an elementary or secondary school to $20,000 from $10,000.
The OBBBA also allows certain expenses (e.g., tuition, fees and books) for postsecondary credentialing offered outside of a traditional higher education institution to be paid from a 529 plan without penalty.
Summary and Next Steps
Now that the OBBBA has passed both houses of Congress and is expected to be signed into law by the time you read this, there are some significant changes to the benefits landscape for employers to consider. While there were many other changes first proposed in the House of Representatives that didn’t make the final cut (allowing HSA contributions for Medicare enrollees; allowing HSAs to reimburse up to $500 per year tax-free for gym memberships; and many others), there are some good first-steps in the OBBBA that employers should note and discuss.
As always, Kushner & Company stands ready to assist employers in deetermining which of these changes they might wish to consider and help implement later this year and into the future.
