Seyfarth Synopsis: On July 4, 2025, Donald Trump signed the One Big Beautiful Bill (OBBB) into law. Although most have focused on the sweeping tax reform included in the OBBB, a number of key employee benefits provisions are included in the OBBB as well. Most significantly, the OBBB expands access to and eligible expenses payable from Health Savings Accounts (HSAs), solidifies first dollar coverage for telehealth under high-deductible health plans (HDHPs), and permanently increases the annual contribution limit for dependent care flexible spending accounts (FSAs) for the first time since 1986. Most of the benefits-related changes become effective January 1, 2026. This legal update provides an overview of the OBBB’s employee benefits provisions and any actions that employers need to take for their employee benefit plans now or in the future.
First Dollar Telehealth Coverage Made Permanent (Effective January 1, 2025)
During the COVID-19 pandemic, the CARES Act temporarily allowed HDHPs to cover telehealth services on a first-dollar basis (i.e., without being subject to the deductible). This relief originally expired beginning in 2025. The OBBB retroactively and permanently reenacted this provision effective for plan years beginning after December 31, 2024, allowing (but not requiring) plans to provide coverage for telehealth benefits under a HDHP prior to satisfaction of the deductible.
- Plan Sponsor Considerations: Plan sponsors who began charging HDHP participants fair market value for telehealth services can either continue that practice or may reimburse participants for the fair market value of telehealth services charged to participants since January 1, 2025. Plan sponsors who decided not to charge for telehealth may rely on the retroactive effect of this relief and do not need to take action.
Expanding Access to HSAs for Bronze and Catastrophic Plans and Direct Primary Care Arrangements (Effective January 1, 2026)
The OBBB will treat all Bronze and Catastrophic level plans that are available through the Exchange as HDHPs. This will open access to HSAs for those enrolled in Bronze or Catastrophic plans.
Additionally, after years of debate over direct primary care compatibility with HDHPs/HSAs, direct primary care services provided by primary care practitioners for a fixed periodic fee under certain limits will no longer be “disqualifying coverage” for purposes of HDHP/HSA eligibility. Direct primary care services include a monthly fee that covers office visits prior to the satisfaction of the HDHP deductible, but do not include procedures that require general anesthesia, extensive lab services, or prescription drugs. The OBBB clarifies that monthly fees for direct primary care are HSA-qualified medical expenses (to the extent they do not exceed the stated limits).
Child Care Tax Relief: Dependent Care FSA Limit Increase and Enhancement of Employer-Provided Child Care Tax Credits (Effective January 1, 2026)
For the first time since 1986, the OBBB enacts a permanent increase to the limit on dependent care FSA contributions. In 2026, the limit will increase to $7,500 (or $3,750 for married couples filing separately). Although the limit is not indexed for inflation, the substantial increase is a welcome change to the prior limit. Further, the maximum tax credit employers may take for qualified child care will be increased from $150,000 to $500,000 ($600,000 for eligible small businesses), adjusted for inflation. The percentage of qualified child care expenses that can be claimed towards the credit will also increase from 25% to 40%.
- Plan Sponsor Considerations: Plan Sponsors should communicate the new Dependent Care FSA limit during the upcoming open enrollment period and take the new limit into account for the 55% average benefits test for purposes of nondiscrimination testing. However, it is unlikely that this increase will provide much nondiscrimination testing relief, since those who were already contributing the maximum amount will likely continue to do so.
Education Benefits (Effective January 1, 2026; Qualified Higher Education Expense Effective Immediately)
The OBBB makes permanent the ability for employers to offer tax-free student loan repayment assistance under the Internal Revenue Code Section 127 qualified educational assistance program, which was originally enacted by the Tax Cuts and Jobs Act. It also indexes the $5,250 qualified educational assistance limit.
The OBBB also permanently extends the current contribution limit for ABLE accounts and extends an additional year of inflation adjustment for the base amount of the contribution limit. It makes permanent the Saver’s Credit available to beneficiaries who make qualified contributions to their ABLE accounts, and increases the credit amount from $2,000 to $2,100. Further, the OBBB makes permanent tax-free rollovers from qualified 529 tuition programs to ABLE accounts.
Additionally, effective immediately, the OBBB expands the definition of “qualified higher education expenses” reimbursable under a 529 plan to include certain non-tuition expenses for elementary, secondary, religious and private school expenses (for example, curriculum and materials, books, online education, tutoring, exam fees, and more) and post-secondary credentialing expenses. The law also increases the amount of tuition expenses reimbursable from a 529 plan for elementary or secondary education from $10,000 to $20,000.
Trump Accounts (Effective January 1, 2026; Pilot Program Effective Immediately)
The OBBB creates new tax-favored accounts for children under the age of 18, called Trump Accounts. These accounts have a $5,000 per year (indexed) contribution limit and distributions from the account are generally prohibited until the child turns 18. Employers can make up to $2,500 in nontaxable contributions per employee. Trump Accounts will operate similarly to IRAs with investments growing on a tax-deferred basis. Under the Trump Accounts Contribution Pilot Program, the Federal government will also contribute a one-time credit of $1,000 to the Trump Accounts for U.S. citizen children born during the years 2025 through 2028.
- Plan Sponsor Considerations: Employers should consider the makeup of its workforce and decide whether to make non-taxable contributions to Trump Accounts on behalf of qualifying children of employees.
Elimination of Certain Fringe Benefits (Effective January 1, 2026)
The OBBB has now permanently removed the tax-free bicycle commuter benefit option and the deduction for moving expenses (with some exceptions for armed forces and intelligence community members).
- Plan Sponsor Considerations: Employers hoping to continue to provide bicycle commuting assistance may continue to do so on a taxable basis.
ACA Premium Tax Credit (Multiple Effective Dates)
Beginning January 1, 2028, the OBBB will require annual affirmative and active verification of information by all enrollees seeking eligibility for premium tax credits. In addition, only individuals who are lawfully present in the United States will be eligible for the credit. Effective January 1, 2026, individuals will no longer be eligible to receive the premium tax credit if they enrolled in coverage through certain special enrollment periods, and the limit placed on the repayment of excess premium tax credits received has been removed. Full repayment of the excess premium credits received will now be required.
Executive Compensation (Effective January 1, 2026)
The aggregation rule under Code Section 162(m) has been revised under the OBBB to include all members of a covered corporation’s controlled group and affiliated service group for purposes of calculating the deduction limit and allocation. The amount of deductible compensation will be allocated to each member of the controlled group or affiliated service group based on the pro-rata portion of the total compensation paid by that member.
Further, the OBBB expands application of the 21% excise tax under Internal Revenue Code Section 4960 on employers that pay over $1 million in remuneration or that pay an excess parachute payment to certain highly paid employees of tax-exempt organizations.
Paid Family and Medical Leave Credit (Effective January 1, 2026)
The paid family medical leave credit allows for an employer that chooses to offer paid family and medical leave to offset the costs of this benefit with credits against wages up to a percentage of the employee’s wages covered by the employer. This was set to expire at the end of 2025, but is now a permanent change under the OBBB. In addition, employers can now offer the credit to workers after six months of employment (previously, the minimum service requirement was a year).
Contact Seyfarth
To further understand what changes plan sponsors can make to their benefit offerings under the OBBB, reach out to your trusted Seyfarth employee benefits attorney.
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