New Law Brings Sweeping Changes to Employee Benefits: What HR Needs to Know About the “One Big Beautiful Bill Act”

Signed into law on July 4, 2025, the wide-ranging “One Big Beautiful Bill Act” (OBBB) introduces major changes across the employee benefits landscape that will significantly impact employers and HR teams. From dependent care and paid leave to student loan assistance and the creation of new “Trump Accounts,” this legislation brings both new opportunities and new responsibilities for employer-sponsored plans.

Most of the changes impacting employee benefits go into effect for tax years beginning after December 31, 2025 (i.e., in 2026).

Here’s what HR professionals need to know.

1. Dependent Care FSAs and Tax Credits Expanded

   Beginning in 2026, the annual income exclusion for Dependent Care Assistance Programs (DCAPs) increases from $5,000 to $7,500 (or $3,750 for those married filing separately). While not indexed for inflation, this higher cap offers greater flexibility for employees with childcare expenses.

   Additionally, the Dependent Care Tax Credit (DCTC), a benefit for employees, has been enhanced, offering a higher maximum credit rate and a more favorable phaseout schedule. Separately, employers benefit from an expanded employer-provided childcare tax credit (for those employers who provide or support childcare services for employees), which now allows a credit of up to $500,000 (adjusted annually) and covers 40% of qualified childcare expenditures (increased from 25%).

2. Health Savings Accounts (HSAs): Telehealth and DPC Reforms

   Several permanent HSA-friendly provisions take effect:

   • Telehealth: HDHPs may now permanently cover telehealth services before the deductible is met. This rule is retroactive to plan years beginning after 2024. Employers who charged employees for early-year telehealth visits under an HDHP will have to decide whether to reimburse these charges
   • Direct Primary Care Arrangements: Starting in 2026, individuals enrolled in qualifying Direct Primary Care (DPC) arrangements will no longer be excluded from HSA-eligibility, provided monthly fees do not exceed $150 for individuals or $300 for families.
   • Marketplace Plan Eligibility: ACA Exchange bronze and catastrophic plans will qualify as HDHPs for HSA purposes beginning January 2026, expanding HSA access for individual plan enrollees.
3. Paid Family and Medical Leave Credit Made Permanent

   The Section 45S tax credit for employers offering paid family and medical leave has been permanently extended. Starting in 2026, employers may apply the credit to premiums paid for insured paid leave policies and the minimum employment requirement is reduced from one year to six months. This expanded credit is now available in all states.

4. Employer Student Loan Repayment Assistance Extended

   Employers may now permanently offer up to $5,250 annually in tax-free student loan repayment assistance through educational assistance programs. Starting in 2027, the cap will be indexed for inflation, making it a potential tool for talent retention.

5. Introducing “Trump Accounts” for Minors

   New Trump Accounts, a tax-advantaged custodial account similar to IRAs, are now available for children under 18 with a Social Security number.

   • Employer Contributions: Employers may contribute up to $2,500 annually (adjusted for inflation) per eligible employee or their dependent.
   • Employee Contributions: Combined family contributions may total up to $5,000 annually.
   • Pilot Program: For children born between 2025 and 2028, the government will contribute a one-time $1,000 seed deposit.

   Withdrawals are restricted until the beneficiary turns 18, and investments must follow guidelines similar to retirement accounts.

6. Additional Provisions to Note
   • Adoption Tax Credit: A $5,000 refundable portion will be available starting in 2025, with Tribal governments now authorized to determine special needs status.
   • Bicycle Commuting: The $20/month tax-free reimbursement has been permanently eliminated, ending the temporary suspension in place since 2018.
   • Transportation Benefits: Minor technical adjustments were made to inflation calculations, but no significant changes.
   • Moving Expense Deductions: The suspension of tax-free moving reimbursements has been made permanent, except for military and intelligence personnel.
   • Premium Tax Credits and Medicaid Eligibility: Beginning in 2026 and 2027, new restrictions will affect premium credit availability for individuals who are not eligible aliens or lose Medicaid due to alien status.

What Should HR Teams Do Now?

1. Review Plan Documents: Update DCAP limits, HSA eligibility, and benefit summaries ahead of the 2026 plan year.
2. Prepare for Trump Accounts: If employers decide to offer Trump accounts, coordinate with a provider to ensure compliance with account setup, funding, and nondiscrimination rules.
3. Communicate: Decide if offering new tax-advantaged opportunities such as expanded student loan repayment and dependent care options.
4. Audit Compliance: Ensure benefits policies align with updated federal tax credit rules and eligibility restrictions.

This legislation represents one of the most substantial benefits reforms in recent years. Employers should be aware of the provisions impacting employee benefits.

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This article is for informational purposes only and is not intended as legal, tax, or benefits advice. Readers should not rely on this information for taking (or not taking) any action relating to employment, compliance, or benefits. Always consult with a qualified professional before making decisions based on this content.