Employee Benefit Provisions in the One Big Beautiful Bill Act
By Charles C. Shulman, Esq.
Public Law 119-21, 14, H.R. 1, 139 Stat. 72 (July 4, 2024), referred to as the One Big Beautiful Bill Act (the OBBBA), was passed by the Senate on July 1, 2025, approved by the House on July 3, 2025 and signed by President Trump on July 4, 2025. An earlier version of the OBBBA was passed by the House on May 22, 2025, but the Senate version, S.Amdt.2360 to H.R.1, made a number of changes to the earlier House version, and the House then approved the Senate version without change. (One of the changes made to the bill by the Senate was to strip the One Big Beautiful Bill title, but it is still referred to by that name.)
The OBBBA extends, and in some cases makes permanent, certain individual, business, and international tax provisions enacted as part of the Tax Cuts and Jobs Act of 2017 that currently are set to change at the end of 2025. The Congressional Budget Office (CBO) staff projected that the One Big Beautiful Bill will increase net deficits by $3.4 trillion over the 2025-2034 period.
The OBBBA contains a number of provisions that impact employee benefit matters, including changes to: controlled group application to the limits to deductibility of certain compensation in excess of $1 million, health savings accounts, dependent care assistance plans, 529 savings accounts, ABLE accounts, new Trump savings accounts, transportation fringe benefits, employer payments of students loans, paid family and medical leave credit for the employer, moving expenses and Federal student loan changes, which are discussed below:
Controlled Group Rules for Code § 162(m) Limits on Compensation in Excess of $1 Million. Code § 162(m) limits the tax deduction that publicly traded corporations can take for compensation paid to certain covered employees to $1 million per year. Covered employees include the CEO, CFO and the top three highest-paid executives. The Tax Cuts and Jobs Act of 2017 amended § 162(m) to provide with respect to the five top executive officers a “once covered, always covered” rule, that any individual who has been identified as one of the covered employees in any year since 2017 remains subject to the limit on deductibility of compensation in excess of $1 million for all future years. The American Rescue Plan Act of 2024 expanded the definition of covered employees to include the next five highest-compensated employees, effective for taxable years beginning after December 31, 2026. Proposed regulations issued in 2025 applied controlled group rules in Code § 162(m) for limited purposes, such as determining the additional five highest compensated employees. 90 Fed. Reg. 4691 (January 16, 2025) (proposing to amend Treas. Reg. § 1.162–33). The OBBBA provides that if the publicly held corporation is a member of a controlled group (as defined in Code § 414), all members of the controlled group would be considered for purposes of the deduction disallowance in proportion to the compensation each entity is paying (and there is not a separate $1 million limit for each entity paying compensation to the employee). This rule is effective for taxable years beginning after December 31, 2025. OBBBA § 70603 adding Code § 162(m)(7).
Health Savings Account (HSA) Changes
Bronze and catastrophic plans. The OBBBA expands Health Savings Account (HSA) eligibility to individuals enrolled in the Affordable Care Act health insurance marketplace even if they are in Bronze or Catastrophic plans, effective January 1, 2026. OBBBA § 71307 adding Internal Revenue Code (Code) § 223(c)(2)(H).
Direct Primary Care Arrangements. Direct Primary Care (DPC) arrangement fees are not considered a separate form of health insurance for purposes of HSA eligibility, and, effective January 1, 2026, participants in the DPC arrangements can use HSA funds for DPC fees for up to $150 a month for individuals and $300 a month for families. OBBBA § 71308 adding Code § 223(c)(1)(E).
Telehealth for HDHP. The OBBBA makes permanent a previous temporary safe harbor, that allows high-deductible health plans (HDHPs) to cover telehealth services before the HDHP deductible is met, effective for plan years beginning after December 31, 2024. OBBBA § 71306 amending Code § 223(c)(2)(E).
Dependent Care Assistance Plans. The OBBBA increases the maximum amount that can be deferred on a pre-tax basis in a dependent care assistance program (DCAP) to $7,500 ($3,750 for married individuals filing separately), up from $5,000 ($2,500 for married individuals filing separately). This is effective beginning with calendar year 2026. However, there are no future increases for inflation. OBBBA § 70404 amending Code § 129(a)(2)(A).
529 College Savings Accounts. The OBBBA expands § 529 savings account: (i) so that K-12 expenses include not just for tuition but also books, materials, testing fees, and tutoring costs, (ii) to increase the annual limit for K-12 tuition expenses from $10,000 to $20,000 and (iii) to use the 529 funds for various post-secondary credentialing programs. This is effective for distributions made after July 4, 2025. OBBBA § 70413 amending Code § 529(c)(7).
Permanent ABLE to Work Expansion of ABLE Accounts for Disabled Individuals. The OBBBA makes permanent certain rules for Achieving a Better Life Experience (ABLE) accounts that were enacted temporarily in the Tax Cuts and Jobs Act of 2017. ABLE accounts are tax-advantaged savings account for disabled individuals created by the Achieving a Better Life Experience Act in 2014 up to the standard limit, which for 2025 is $19,000. The Tax Cuts and Jobs Act of 2017, under an ABLE to Work rule, allowed disabled employed who work the ability to contribute additional funds up to the lesser of their annual earnings or the federal poverty level for a single-person household ($15,650 in 2025), but this ABLE to Work rule was set to expire on December 31, 2025. The OBBBA makes this ABLE to Work extension permanent. OBBBA § 70115 amending Code § 529A(b)(2)(B). The ability to roll over from a section 529 savings plan to an ABLE account was also made permanent by the OBBBA. OBBBA § 70117 amending Code § 529(c)(3)(C)(i)(III).
Trump Savings Accounts. The OBBBA provides for a new type of tax-favored savings account for children (Trump accounts), effective January 1, 2026. These “Trump Accounts” allow for annual contributions of up to $5,000 (indexed for inflation) and grow tax-deferred until the child turns 18, at which point will be treated the same as an IRA for purposes of withdrawals, which would be subject to an early 10% penalty prior to age 59-1/2 except for certain permitted withdrawals, such as for a first-time home purchase, qualified educational expense, disability and certain medical expenses, are not subject to any early withdrawal penalty, although income tax on distribution is due in all cases. Employers can also make up to $2,500 in nontaxable contributions. Funds will be invested in registered mutual funds. Children born between 2025 and 2028 will have a $1,000 initial government contribution into these accounts, which will be set up by the government even if the employee does not set up the account. Note that in contrast to 529 College Savings Accounts, Trump Accounts are taxable on distribution. OBBBA § 70204 adding new Code § 530A.
Qualified Transportation Fringe Benefits. The OBBBA modifies the inflation adjustment for qualified transportation fringe benefits (transit passes, parking and vanpooling) to provide for an additional year of inflation adjustment to the qualified transportation fringe benefits, beginning in 2026. Effective beginning in 2026, a qualified bicycle commuting reimbursement is permanently eliminated. Thus, bicycle commuting reimbursements will no longer enjoy the same tax-free benefits as transit passes, parking or vanpooling. OBBBA § 70112 amending Code § 132(f).
Employer Payments of Student Loans. The OBBBA makes permanent a provision in the CARES Act of 2020 allowing employers to make non-taxable contributions to an employee’s student loan repayments up to $5,250 annually, adjusted for inflation, under an educational assistance program. The $5,250 exclusion limit will also be indexed for inflation. This is effective for payments made after December 31, 2025. OBBBA § 70412 amending Code § 127(c)(1)(B).
Paid Family and Medical Leave Credit for the Employer. The paid family and medical leave tax credit established under the Tax Cuts and Jobs Act of 2017 has been made permanent by the OBBBA, and employers can calculate the credit based on either wages paid or premiums paid for paid family and medical leave insurance policies. This is effective January 1, 2026. OBBBA § 70304 amending Code § 45S.
Employer-Provided Childcare Credit. The OBBBA increases the maximum credit the employer receives for employer-provided childcare expenses to 40% up to $500,000 (or 50% up to $600,000 for small businesses), effective January 1, 2026. OBBBA § 70401 amending Code § 45F.
Moving Expenses. A tax deduction for moving expenses or exclusion for employer-provided moving expense reimbursements will only be allowed for certain members of the armed forces and intelligence community, effective January 1, 2026. OBBBA § 70113 amending Code § 217(k).
Federal Student Loan Cutbacks. Currently (i) Federal Direct Unsubsidized Loans are available to both undergraduate and graduate students, do not require demonstration of financial need, no credit check is required, but have dollar limits, e.g., $20,500 per year for graduate students and various limits for undergraduate students; (ii) Federal Direct Subsidized Loans, have a lower interest rate with no interest accruing while in school, are limited to undergraduate students and are limited by demonstrated financial need after taking into account an expected family contribution; and (iii) Grad PLUS Loans for graduate and professional students, which have a somewhat higher interest rate than Federal Direct Unsubsidized Loans, do not have the above dollar limits limitations, and can cover up to the full cost of attendance minus other financial aid and Federal Direct Loans received, are not tied to financial need and are subject to a credit check. Under the OBBBA: (i) the Federal Direct Unsubsidized Loan program will have strict borrowing limits beginning July 1, 2026, of $20,500 annually and a $100,000 lifetime limit for non-degree graduate students, and professional students (students seeking a professional degree) will have Federal Direct Unsubsidized Loan limits of $50,000 annually and $200,000 lifetime; (ii) Federal Direct Subsidized Loans will be eliminated beginning July 1, 2026, and (iii) Grad PLUS Loans will be eliminated starting July 1, 2026 (with a limited grace period described below). The remainder will have to come from private loans, but without the protections in place for Federal Loans. There is a legacy provision in OBBBA allowing students with existing Grad PLUS Loans before July 1, 2026, to continue borrowing for another three academic years; and thus, for those who will have begun graduate school before July 1, 2026, any shortfall in Direct unsubsidized loans due to the new loan limits can be made up with Grad Plus Loans. Loan forgiveness plans may also be affected by the OBBBA. For loans disbursed after June 30, 2026, there will no longer be any Income-Driven Repayment programs (e.g., SAVE, IBR, PAYE). However, there will still be a Public Service Loan Forgiveness (PSLF) program, which forgives the remaining balance of federal student loans for eligible borrowers who work full-time in public service for 10 years while making qualifying payments.
Medicaid Restrictions. The OBBBA includes significant new restrictions on Medicaid, providing that able-bodied adults between 19 and 64 years old, who do not have dependents, need to complete 80 hours of qualifying community engagement each month to maintain eligibility; two consecutive months of non-compliance with notice can trigger automatic disenrollment and states must verify Medicaid eligibility twice a year. These provisions are effective December 31, 2026 (or up to December 31, 2028 for requesting states complying in good faith). OBBBA § 71119 amending § 1902 of the Social Security Act. A rural hospital stabilization fund of $50 billion (spread over 2026-2030) was added to the OBBBA for rural healthcare in an attempt to partially offset the harm of the Medicaid cutbacks that most affect rural hospitals. OBBBA § 71401 amending § 2105 of the Social Security Act. Note that while the rural hospital stabilization fund is temporary, the Medicaid cutbacks are permanent.
SNAP Restrictions. Supplemental nutrition assistance program (SNAP) work requirements for able-bodied adults without dependents will apply to beneficiaries ages 18-64 instead of the current ages of 18-54, effective July 4, 2025; states with a SNAP payment error rate of 6% or more in the previous 2 or 3 years will have to contribute between 5 and 15% of the benefits, effective in 2028; and the state contribution for SNAP administrative costs will increase from 50% to 75% beginning in 2027. OBBBA § 71119 amending § 1902 of the Social Security Act.
Some Other Notable OBBA Provisions. Other notable provisions in the OBBBA include: (i) making permanent the Tax Cuts and Jobs Act tax rates including the 37% top individual tax rate; (ii) increasing the standard deduction to $15,750 for single filers and $31,500 for married filers starting in 2025 and adjusted for inflation for future years; (iii) increasing the nonrefundable child tax credit to $2,200 for 2025 and indexing it permanently for inflation; (iv) a permanent above the line charitable deduction of up to $1,000 for single filers who do not itemize ($2,000 for joint filers), and a new 0.5% floor on charitable contribution deductions for individuals who elect to itemize, effective in 2026; (v) making permanent the 20% Code § 199A pass-through deduction, and expanding the deduction limit phase-in range to $75,000 (single return) and $150,000 (joint returns); (vi) the current $10,000 state and local tax (SALT) cap would be increased to $40,000 retroactive to January 1, 2025 and through December 31, 2029 ($20,000 for married individual filing a separate return), but a phase-out threshold for the higher SALT cap would begin at $500,000 ($250,000 for a married individual filing separately); the cap will increase by 1% per year until 2030, at which point it will revert back to $10,000; (vii) and since increased SALT expires at the end of 2029, the pass-through entity tax for partnerships or LLCs (other than single owner LLC) in certain states as a workaround to the lower SALT cap was not disallowed by the final bill; (viii) permanent increase in estate tax exemption to $15 million for individuals and $30 million for married couples for gifts made after December 31, 2025; (ix) permanent extension of the mortgage interest deduction limitation applicable to interest on the first $750,000 of home acquisition indebtedness ; (x) permanent elimination of miscellaneous itemized deductions except for unreimbursed expenses for eligible educators, effective for tax years after December 31, 2025; (xi) permanent extension of increased alternative minimum tax exemption amounts and modifications of phase-out thresholds; (xii) permanent termination of the deduction for personal exemptions; (xiii) a temporary $6,000 deduction for each taxpayer (and spouse) aged 65 or older, for tax years 2025 through 2028; (xiv) deduction on certain qualified tip income of up to $25,000 received by an individual in an occupation that customarily and regularly receives tips in a given tax year, effective for tax years 2025 through 2028; (xv) deduction for certain qualified overtime compensation of up to $12,500 ($25,000 in the case of a joint return) received by an individual during a given tax year, effective for tax years 2025 through 2028; (xvi) deduction of up to $10,000 a year for U.S. made new car loan financing interest for each of 2025, 2026, 2027 and 2028; (xvii) a provision that would expand the Code § 4960 excise tax on compensation in excess of $1 million paid to certain executives of exempt organizations to generally apply to all employees and former employees of an applicable tax-exempt organization; (xviii) replacing the current-law endowment excise tax on applicable educational institutions with a new rate structure, effective for tax years beginning after December 31, 2025 of 1.4%, 4% or 8% (with an exemption for educational institutions with fewer than 3,000 students); (xix) a new 1% floor on charitable deductions by corporations, effective for tax years beginning after December 31, 2025; (xx) a new provision, beginning in 2027, allowing a dollar for dollar federal tax credit for individuals who donate to qualified scholarship-granting organizations supporting tuition for private and religious K-12 schools up to $1,700, and the scholarships can be used to reduce private and religious school tuition; (xxi) clean energy credits eliminated for electric vehicles acquired after September 30, 2025; (xxii) business tax credits for clean energy will be eliminated or phased out between December 31, 2025, and 2031; (xxiii) new opportunity program zones made permanent with rolling ten-year designations, effective July 1, 2026; (xxiv) additional $150 billion in military spending; (xxv) additional $100 billion in ICE funding; and (xxvi) asylum fees $100 annually. This is, of course, only a partial list of the OBBBA provisions.
