The One Big Beautiful Bill Act (OBBB) includes Changes to Employee Benefits
July 9, 2025
Introduction
On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act (“OBBB”) into law. The almost 900-page bill is a sweeping tax and spending package that President Trump regards as a fulfillment of campaign promises. The OBBB includes several provisions that will impact employee benefit plans. The following summary reviews these employee benefit plan changes.
Changes to Health Savings Accounts (HSAs)
There are two notable changes for HSAs:
-Permanent extension relief for first dollar telehealth benefits. Previously this coverage was provided as temporary relief in the COVID-19 pandemic and expired for plan years beginning in 2025. These changes allow medical plans to provide low or no-cost telehealth benefits prior to satisfaction of the deductible for those enrolled in a qualified HDHP without jeopardizing employees’ HSA contributions.
This relief is now permanent retroactively to plan years beginning after Dec. 31, 2024.
-Direct primary care services. Under the OBBB, direct primary care service arrangements are not disqualifying coverage for HSA account holders and certain expenses are now considered HSA-eligible expenses . Generally, direct primary care services include a monthly fee that covers office visits prior to the satisfaction of the HDHP deductible. These monthly fees are now HSA-qualified expenses, provided they do not exceed $150 per month for an individual or $300 per month for a family (indexed for inflation annually).
This provision is effective for months after December 31, 2025
Enhancement of Child and Dependent Care Credit
Before the OBBB, a taxpayer with one or more qualifying individuals, such as a child or other dependents, is eligible to claim credit for employment-related expenses for child. and dependent care. For this purpose, employment-related expenses are expenses for household services and expenses for the care of a qualifying individual.
This credit is calculated by multiplying the amount of qualifying expenses – a maximum of $3,000 if the taxpayer has one qualifying individual, and up to $6,000 if the taxpayer has two or more qualifying individuals – by the appropriate credit rate. The credit rate varies by the taxpayer’s adjusted gross income, with a maximum credit rate of 35% that declines, as AGI increases, to 20% for taxpayers with AGI above $43,000.
The OBBB increases the maximum credit rate to 50%, reduced by one percentage point, but not below 35%, for each $2,000 or fraction thereof by which the taxpayer’s AGI exceeds $15,000. For AGIs between $43,001 and $75,000 ($86,001 and $150,000, respectively, in the case of a joint return), the credit rate is 35%.
This credit rate is further phased down to 20% for AGI between $75,001 and $105,000($150,001 and $210,000, respectively, in the case of a joint return).
This provision is effective for tax years after December 31, 2025.
Permanence of employer tax-free payments up to $5,250 (indexed) for employees’ qualified student loans.
The OBBB permanently extends the $5,250 annual tax exclusion for employer payments of qualified student loans under an educational assistance program (currently set to expire Dec. 31, 2025); indexes the current $5,250 cap for all IRC Section 127 education assistance programs for inflation.
This provision is effective for tax years after December 31, 2025.
Permanence and enhancement of employer tax credit for Paid Family and Medical Leave
The QBBB permanently extends the employer tax credit for PFML (currently set to expire Dec. 31, 2025), and make three enhancements: (i) modifies the credit to allow it to be claimed for an applicable percentage of premiums paid or incurred by an eligible employer for insurance policies that provide PFML for qualifying employees; (ii) makes the credit available in all states; and (iii) lowers the minimum employee work requirement from 1 year to 6 months.
This provision is effective for tax years after December 31, 2025.
New Tax-Deferred Investment Accounts for Children
The OBBB creates a new tax-deferred investment account for children, called a “Trump account”, these accounts are eligible to receive contributions from parents, relatives, employers, and other taxable entities as well as non-profit and government entities. To be eligible for an account, the child must be a U.S. citizen and have a Social Security number (SSN). Trump account funds must be invested in a diversified fund that tracks an established index of U.S. equities and grow tax deferred.
Contributions: Contributions to a Trump account are limited to $5,000 annually of after-tax dollars. The $5,000 contribution limit is indexed for inflation.
Pilot Program: Under a newborn pilot program, for U.S. citizens born between January 1,2025, and December 31, 2028, the federal government will contribute $1,000 per child into every eligible account.
If the IRS determines that an eligible individual does not have an account opened for them by the first tax return where the child is claimed as a qualifying child, the IRS will establish.an account on the child’s behalf. Parents have the option to opt out of the account.
This section is effective for tax years beginning after December 31, 2025
Enhancement of Adoption Credit
Previously, taxpayers were allowed to claim a nonrefundable income tax credit for qualified adoption expenses incurred, up to a maximum of $17,280 per child.
Effective 2025, the adoption credit is enhanced to include a refundable portion of up to $5,000. This refundable amount will be adjusted for inflation annually with the adjustments beginning in 2025 using a base year of 2024 for cost-of-living calculations. The provision clarifies that the refundable portion of the adoption credit will not be eligible for carryforward to subsequent years.
This provision is effective for tax years beginning after Dec. 31, 2024.
Additional Expenses Treated as Qualified Higher Education Expenses for Purposes of 529 Accounts
The OBBB provides that tax-exempt distributions from 529 savings plans – tax-advantaged accounts that fund education expenses – apply to more expenses attributable to enrollment or attendance at an elementary or secondary public, private, or religious school.
This expanded list of eligible education expenses includes tuition, curriculum and curricular materials; books or other instructional materials; online educational materials. tuition for tutoring or educational classes outside of the home; fees for nationality standardized tests, advanced placement exams, and college admission exams; fees for dual enrollment at higher education institutions; and educational therapies for students with disabilities provided by a licensed or accredited professional.
The OBBB increases the annual limit for 529 account distributions from $10,000 to $20,000. This limitation applies only to K-12 expenses.
The effective date for the expanded expenses applies to distributions made after the date. of enactment, and the doubled limitation applies to tax years beginning after December 31, 2025.
Qualified Higher Education Expenses for Purposes of 529 Accounts
The OBBB allows 529 savings plan tax-exempt distributions to apply to “qualified postsecondary credentialing expenses.”
Such expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance at a recognized postsecondary credential program. This also includes fees for testing or continuing education required to obtain or maintain a recognized postsecondary credential.
This section applies to distributions made after the date of enactment.
Dependent Care Assistance Program’s Tax-free Contribution Limit Increased
Under previous law, the maximum annual exclusion for dependent care assistance is $5,000 ($2,500 for a married individual filing separately). Code Sec. 129 provides that gross income of an employee does not include amounts paid or incurred by an employer for dependent care assistance provided to an employee if the amounts are furnished under a dependent care assistance program.
This section increases the exclusion for dependent care assistance up to $7,500 annually. ($3,750 for a married individual filing separately).
This section is effective for tax years beginning after December 31, 2025.
Exclusion for Qualified Bicycle Commuting Reimbursement
Permanently Eliminated
Under previous law, the $20 per month qualified bicycle commuting reimbursement exclusion received by an employee from an employer (which is suspended for tax years2018 through 2025) is scheduled to return for tax years beginning after December 31, 2025.
This section permanently eliminates the qualified bicycle commuting reimbursement. exclusion. For qualified transportation fringe benefits other than the qualified bicycle commuting reimbursement, the provision changes the base year (from 1998 to 1997) for purposes of calculating the inflation adjustment.
This section is effective for tax years beginning after December 31, 2025.
Certain Affordable Care Act exchange plans HSA-qualifying coverage.
ACA exchange-based bronze and catastrophic plans offered in the individual market will be treated as HSA-qualifying HDHPs.
This provision is effective for tax years after December 31, 2025.