Of critical importance, the legislation, formally known as the “One Big Beautiful Bill” Act (the Act, Public Law No: 119-21), does not include any changes to the taxation of or deduction for health benefits, an issue that is a concern to plan sponsors. It also does not change the tax incentives for retirement benefit plans.

Employee benefit plan sponsors will need to review several parts of the Act, particularly those related to Health Savings Accounts (HSAs) and certain other fringe benefits. They also should be aware of other health-related portions of the Act that may have an impact on both participants and overall health spending trends.

Provisions of the Act related to employee benefits

Health Savings Accounts

Three provisions in the Act make it easier to use HSAs:

• Telehealth services. The Act permanently and retroactively permits plan sponsors that offer high-deductible health plans (HDHPs) paired with HSAs to cover telehealth services before the HDHP deductible is met. This provision has been enacted in previous sessions of Congress, but was allowed to expire as of December 31, 2024, as we discussed in our December 24, 2024 insight. The Act permanently allows (but does not require) HDHPs to cover telehealth and other remote services before the deductible is met, effective for plan years beginning after December 31, 2024.
• Bronze and catastrophic plans qualify as HDHPs. For those who obtain coverage on the ACA health insurance Marketplace/Exchange, the Act provides that, effective for months beginning after December 31, 2025, HSA-qualified HDHPs include bronze and catastrophic plans. Previously, only certain silver plans qualified as HDHPs.
• Direct primary care service arrangements. The Act creates a new provision designed to assist individuals who belong to a concierge primary care physician practice that charges a fee to access unlimited primary care. Effective for months beginning after December 31, 2025, the Act allows individuals who are members of a “direct primary care” service to contribute to an HSA. The direct primary care service would not be treated as a health plan that would disqualify the individual from contributing to an HSA.

The Act defines a direct primary care service arrangement as consisting solely of primary care services provided by primary care practitioners if the sole compensation for such care is a fixed periodic fee. Fees must not exceed $150 per month for an individual or $300 per month for more than one person. Additionally, services cannot include procedures that require the use of general anesthesia, prescription drugs (other than vaccines), and laboratory services not typically administered in an ambulatory primary care setting. The Treasury Department will issue regulations or guidance on this issue, in consultation with the Department of Health and Human Services (HHS).

Furthermore, the Act allows fees paid for direct primary care service arrangements to be treated as medical expenses that can be payable from the HSA.

The Act does not contain additional provisions to expand HSA access that were in the bill passed in the House, including provisions that would have permitted individuals in Medicare Part A to contribute to an HSA.

Changes to fringe benefit taxation

The Act modifies several exclusions for employer-provided fringe benefits for tax years beginning after December 31, 2025:

• Bicycle commuting expense reimbursement terminated. The Act terminates the exclusion for qualified bicycle commuting reimbursement. For transportation benefits other than bicycle commuting, the Act adds an additional year of inflation adjustment.
• Moving expenses reimbursement terminated. The Act terminates the exclusion for qualified moving expenses reimbursement and the deduction for moving expenses, except for active-duty members of the Armed Forces and members of the Intelligence Community.
• Student loan reimbursement payments exclusion made permanent. Current law permits tax-free employer educational assistance payments up to $5,250 annually. The Act makes this exclusion permanent. It also indexes the $5,250 maximum exclusion for taxable years beginning after December 31, 2025.
• Dependent care assistance exclusion increased. Under current law, the maximum exclusion for an employer-provided Dependent Care Assistance Program (DCAP) under Internal Revenue Code Section 129 is $5,000 ($2,500 for a married individual filing separately). The Act increases the exclusion to $7,500 annually ($3,750 for a married individual filing separately), effective for taxable years beginning after December 31, 2025.

The Act also enhances the child and dependent care tax credit, which may be claimed as a credit against tax liability by an individual in lieu of taking the DCAP exclusion.

Increases to tax credits for employer-provided childcare and paid family and medical leave

Under IRC Section 45F, employers are eligible to receive a nonrefundable tax credit of up to $150,000 per year based on 25 percent of qualified childcare expenses they provide to employees. The Act permanently increases the maximum credit, creates a separate credit amount for qualified small businesses, and indexes the maximum credit amounts for inflation. Effective for amounts paid or incurred after December 31, 2025, the maximum credit will increase from $150,000 to $500,000 ($600,000 for small businesses) with those dollar amounts being indexed for inflation; and the percentage of qualified childcare expenses covered will increase from 25 to 40 percent (50 percent for small businesses). The Act also allows small businesses to use a third-party intermediary to provide childcare services on their behalf.

Under IRC Section 45S, employers that provide paid family and medical leave can claim a tax credit, which is a percentage of wages paid to employees while on family and medical leave. The percentage of wages is 12.5 percent and increased based on the amount paid to a qualifying employee that exceeds 50 percent of the employee’s wages, with a maximum of 25 percent. To claim the tax credit, employers must have a written policy in place that provides for at least two weeks of paid family and medical leave annually to all full-time employees, with paid leave equal to at least 50 percent of the wages normally paid to the employee. The tax credit is available to employers in all states; however, amounts required under state law or paid for by the state are not taken into account in determining the credit.

The Act makes permanent this paid family and medical leave tax credit and enhances it for taxable years beginning after December 31, 2025. First, the Act allows employers to claim the credit if they have a stand-alone insurance policy for paid family leave benefits. It also lowers the minimum employee work requirement to receive the credit from one year to six months.

Trump Accounts and the pilot contribution program

The Act creates a new tax-preferred savings account for children under age 18 called the “Trump Account.” Beginning January 1, 2026, these accounts will operate like individual retirement accounts that allow earnings to grow on a tax-free basis. Parents, relatives or other entities may contribute up to $5,000 annually after tax (indexed for inflation) up to age 18, with exceptions to the maximum for certain entities.

Children who are born from 2025 through 2028 will be automatically enrolled and receive a one-time deposit of $1,000 from the federal government into their account.

Under a new IRC Section 128, employers may contribute to an employee’s child’s account on a tax-free basis. The employer must have a separate written plan document to make such contributions, and the plan is subject to nondiscrimination rules under IRC Section 129. Employers may contribute up to $2,500 for each employee, and that amount is indexed beginning in 2027.

The accounts must be held by a financial institution and invested in a qualified equity index fund. Further regulatory guidance will be forthcoming from the Treasury Department.

Taxation of tips and overtime

The Act provides temporary changes to the taxation of tips and overtime from 2025 through 2028. It temporarily allows an above-the-line deduction of up to $25,000 for qualified tips, which is phased out at higher incomes. It also allows an above-the-line deduction of up to $12,500 ($25,000 for a joint return) for qualified overtime compensation.

ACA subsidies, Medicaid and Medicare

The Act has a significant impact on the U.S. health system generally because it imposes $1 trillion in cuts to Medicaid and ACA programs. The legislation is estimated to cut Medicaid funding by $940 billion over 10 years, according to an analysis by the Congressional Budget Office (CBO). Medicaid cuts will come in the form of new work requirements, more frequent eligibility verification, new cost-sharing copayments for certain Medicaid beneficiaries and limits on state provider taxes.

The Act also reduces support for the ACA Exchanges/Marketplace by more than $200 billion, including changing premium assistance tax credit eligibility and verification rules. Together, the CBO estimates that these changes would cause 11.8 million people to become uninsured over 10 years.

Separate from these cuts, the Act failed to extend the enhanced ACA subsidy expansion, initially part of COVID relief, beyond December 31, 2025. These enhanced subsidies significantly lower the cost of coverage on the ACA Exchanges and resulted in Exchange enrollment increasing to almost 25 million in 2025. Furthermore, the expiration of the enhanced subsidies is expected to result in an increase in premiums for Exchange coverage. As a result, the CBO analysis indicates that 5.1 million people would become uninsured due to the failure to extend these enhanced subsidies. Unlike some of the Medicaid changes, which generally begin in 2027, these ACA subsidies will be eliminated in 2026, resulting in individuals losing Exchange coverage as early as January 2026.

Implications for plan sponsors

Plan sponsors should work with their professional service providers to ensure that they understand the new law and accommodate the changes it requires into benefit systems and policies. Employers may wish to consider operational and tax strategy changes in light of the Act’s provisions.

Additionally, plan sponsors should also be aware of the possibility that individuals who lose coverage could seek to enroll in employment-based plans, if they have previously avoided them because of high employee premium contributions. Dependents who previously did not enroll in employment-based coverage because of cost may seek to enroll in 2026 if ACA Exchange premiums increase significantly. Plan sponsors may see requests for new enrollments both at open enrollment and as a special enrollment when coverage is lost.