What you need to know about the One Big Beautiful Bill Act's impact on Employee Benefits

The recently passed budget reconciliation law, officially known as the One Big Beautiful Bill Act (OBBBA), represents the most significant transformation of employer-sponsored benefits in decades. Signed into law on July 4, 2025, this landmark legislation affects millions of American workers and fundamentally reshapes how employers can support their workforce through tax-advantaged benefits.

The OBBBA introduces sweeping changes across multiple benefit categories, creating new opportunities while eliminating others. These changes span from:

• Expanded Health Savings Account eligibility - making HSAs accessible to more employees
• Entirely new savings vehicles for children - through innovative Trump Accounts
• Enhanced dependent care support - with increased FSA limits
• Permanent student loan assistance - providing long-term planning stability

Employers must navigate a complex landscape of enhancements, new offerings, and strategic considerations. The changes span 2025 through 2026, requiring immediate attention to implementation timelines and employee communication strategies.

Understanding these changes isn't just about compliance, it's about competitive advantage. Organizations that effectively leverage these new benefit opportunities can:

• Enhance recruitment efforts - by offering cutting-edge benefits packages
• Improve employee retention - through meaningful financial wellness support
• Strengthen competitive positioning - in tight talent markets

The question isn't whether these changes will impact your organization, but how quickly you can adapt to maximize their potential.

Health Savings Accounts get a major upgrade: three game-changing expansions

Telehealth coverage revolution: first-dollar benefits made permanent

The OBBBA permanently revives and expands one of the most popular pandemic-era healthcare flexibilities. High Deductible Health Plans (HDHPs) can now provide first-dollar telehealth and remote care services without disqualifying employees from HSA contributions. This change is effective retroactively to December 31, 2024, meaning current plan year participants can already benefit from this expanded coverage.

This represents a fundamental shift in how HDHPs can structure their benefits. Previously, any first-dollar coverage (except for specific preventive services) would disqualify a plan from HSA eligibility. The telehealth exception removes this barrier, allowing employees to access:

• Virtual consultations - with healthcare providers from anywhere
• Remote monitoring services - for chronic condition management
• Digital health platforms - for wellness and preventive care

All of these services are now available without impacting HSA contribution eligibility.

For employers, this change reduces administrative complexity while potentially lowering overall healthcare costs. Telehealth services typically cost less than in-person visits and can improve health outcomes through increased access to care. Employees benefit from convenient, cost-effective healthcare options that don't compromise their ability to maximize tax-advantaged HSA savings.

Implementation requires updating plan documents and communicating the expanded coverage to employees. Organizations should work with their insurance carriers to ensure telehealth benefits are properly structured and promoted to maximize utilization and employee satisfaction. For comprehensive benefits administration support during this transition, consider partnering with experienced providers like Clarity Benefit Solutions.

Bronze and catastrophic plans now open HSA doors

Beginning in 2026, the OBBBA treats all Bronze and catastrophic plans available on ACA exchanges as qualified HSA plans. This represents a significant expansion of HSA eligibility for individuals who previously couldn't access these tax-advantaged accounts due to their lower-cost insurance coverage choices.

Historically, Bronze and catastrophic plans often failed to meet the specific deductible and coverage requirements for HSA eligibility. The new law removes these barriers, recognizing that employees with lower-premium plans also deserve access to triple tax-advantaged savings opportunities.

This change particularly benefits several employee populations:

• Younger employees - who often choose lower-premium plans
• Part-time workers - seeking affordable coverage options
• Lower-wage positions - where premium affordability is crucial

Employers can now offer HSA benefits to a broader employee base, potentially increasing participation rates and providing valuable financial wellness tools to previously excluded workers.

Benefits administrators should prepare for expanded HSA eligibility verification processes and consider how this change might impact overall benefit strategy. Organizations may need to evaluate whether to offer HSA-compatible plans more broadly or adjust their benefits mix to accommodate increased demand for HSA access. Clarity Benefit Solutions can help organizations navigate these strategic decisions and implementation challenges.

Plan documents must reflect new eligibility rules for Bronze and catastrophic plans to ensure compliance with updated HSA requirements.

Direct Primary Care integration: a new healthcare model gets HSA recognition

The OBBBA introduces groundbreaking recognition of Direct Primary Care (DPC) arrangements within the HSA framework. Starting in 2026, DPC services will no longer disqualify individuals from HSA contributions, and DPC fees become HSA-eligible medical expenses with specific monthly limits.

Direct Primary Care represents an innovative healthcare delivery model where patients pay a recurring flat fee directly to their primary care physician or practice. This fee typically covers:

• Clinical and lab services - routine testing and diagnostics
• Consultative services - comprehensive provider consultations
• Care coordination - managing referrals and specialist care
• Comprehensive care management - ongoing health monitoring and support

DPC practices focus on primary care services while recommending high-deductible health plans for other medical needs.

Under the new law, DPC fees qualify as HSA-eligible expenses up to $150 per month for individuals or $300 per month for families, with amounts indexed for inflation. This creates a powerful combination: employees can use HSA funds for their DPC membership while maintaining HSA eligibility and accessing cost-effective primary care services.

Important clarification: Direct Primary Care arrangements are now explicitly reimbursable under both HSAs and HRAs, with IRS guidance confirming that DPC is not considered a separate health plan. This removes previous uncertainty about DPC integration with tax-advantaged health accounts.

For employers, DPC integration offers an opportunity to provide comprehensive primary care benefits at predictable costs. The model's emphasis on preventive care and care coordination can lead to better health outcomes and reduced overall healthcare expenses. Organizations should evaluate DPC partnerships as part of their broader healthcare strategy, particularly for populations that would benefit from enhanced primary care access.

CHOICE Arrangements and Cafeteria Plan Integration (IRS §125 and §105)

The OBBBA introduces significant enhancements to individual coverage health reimbursement arrangements through the new CHOICE Arrangement provisions, representing a codified and improved version of Individual Coverage HRAs (ICHRAs).

Key Features of CHOICE Arrangements

• Pre-tax Premium Benefits: Employees can now use pre-tax salary reductions via Section 125 cafeteria plans to pay individual premiums on ACA exchanges. This integration with Premium Only Plans (POP) provides employees with tax-favored access to individual coverage, making marketplace plans more affordable through pre-tax deductions.
• Enhanced Flexibility: Unlike previous ICHRA restrictions, employers can now offer CHOICE arrangements alongside group health plans to the same employee class. This flexibility allows organizations to provide multiple coverage options without complex class distinctions.
• Streamlined Administration: The employee notice period has been reduced from 90 to 60 days for CHOICE HRA implementations, enabling faster deployment and reduced administrative burden.

Employer Implementation Considerations

Organizations considering CHOICE arrangements must address several key administrative requirements:

• Documentation Updates: Employers need to amend Section 125 cafeteria plan documents to incorporate CHOICE arrangement provisions and ensure compliance with updated regulations.
• Payroll System Integration: Systems must be updated to handle pre-tax deductions for individual premium payments and coordinate with CHOICE HRA reimbursements.
• Employee Communication: Comprehensive employee notifications must explain the new options, tax advantages, and enrollment processes within the shortened 60-day notice period.

Small Employer Tax Credit

The OBBBA provides additional incentives for small employers through a temporary tax credit for CHOICE HRA participation. Eligible employers can claim up to $100 per employee per month in the first year of implementation, helping offset startup costs and encouraging adoption.

Why CHOICE Arrangements Matter: This provision offers employees greater flexibility and affordability through tax-favored access to individual coverage, particularly beneficial for small employers who may find group health insurance cost-prohibitive. The integration with cafeteria plans creates a seamless experience for employees while providing employers with a competitive benefits option.

Dependent Care FSA limits see substantial increase

The OBBBA provides significant relief for working families by increasing Dependent Care FSA limits to $7,500 for plan years beginning January 1, 2026. For married couples filing separately, the limit increases to $3,750. This represents a $2,500 increase from current federal limits and provides meaningful tax savings for families managing childcare and eldercare expenses.

Unlike many other provisions in the OBBBA, this increase is not indexed for inflation, making it a fixed benefit enhancement rather than one that grows over time. The change affects all qualifying dependent care expenses, including:

• Daycare services - for children under 13
• After-school programs - providing supervised care
• Summer camps - during school breaks
• Elder care services - for qualifying adult dependents

This increase comes at a critical time when childcare costs continue to rise nationwide. The additional $2,500 in tax-free savings can provide substantial financial relief for working families, potentially saving them hundreds of dollars annually in federal and state taxes depending on their tax bracket.

Nondiscrimination Testing Risks

The increased Dependent Care FSA limits create potential compliance challenges that employers must carefully navigate. The 55% average benefits test under nondiscrimination rules becomes particularly concerning when only highly compensated employees (HCEs) maximize the new $7,500 limits.

Key Risk Factors:

• HCEs may be more likely to contribute the full $7,500 due to higher childcare costs and greater tax sophistication
• Non-highly compensated employees may continue contributing at lower levels, skewing the average benefits test
• Plans could unintentionally fail nondiscrimination requirements, affecting who actually benefits from the increased limit

Mitigation Strategies:

• Consider capping HCE contributions to maintain compliance with the average benefits test
• Implement enhanced education campaigns to encourage broader participation across all employee groups
• Monitor contribution patterns throughout the plan year to identify potential nondiscrimination issues early
• Evaluate safe harbor design options that may provide nondiscrimination protection

Why This Matters: Employers could unintentionally disqualify their entire Dependent Care FSA plan without proper awareness and management of nondiscrimination risks. This would impact all employees, not just those who contributed above previous limits.

Employers must amend their plan documents to reflect the new limits and communicate these changes to employees well before the 2026 open enrollment period. Organizations should also consider promoting increased participation in Dependent Care FSAs given the enhanced value proposition. Implementation considerations include:

• Payroll system updates - to accommodate new contribution limits
• Benefits administration preparation - for increased enrollment volumes
• Employee education campaigns - highlighting the enhanced savings opportunity

Student loan repayment assistance becomes a permanent employee benefit

One of the most significant long-term changes in the OBBBA is making the $5,250 annual non-taxable benefit for employer-sponsored student loan assistance permanent. Previously subject to periodic extensions and uncertainty, this benefit now provides employers with a stable, predictable tool for supporting employees with educational debt.

The permanent status removes a major barrier to program implementation, uncertainty about future availability. Employers can now confidently invest in student loan assistance programs as part of their long-term compensation strategy without worrying about legislative expiration dates. Additionally, the benefit amount will now adjust for inflation, ensuring its value remains meaningful over time.

This change is particularly valuable for organizations in several scenarios:

• Recruiting younger talent - where student debt is often a major concern
• Competing in education-heavy industries - where advanced degrees are common
• Addressing retention challenges - in markets where student debt impacts job decisions

Student loan assistance programs have proven effective for employee retention, with many workers citing student debt relief as a significant factor in employment decisions. The benefit's tax-free nature makes it more valuable than equivalent salary increases.

Implementation considerations include program design decisions, vendor selection for loan servicer coordination, and communication strategies to maximize employee awareness and utilization. Organizations should evaluate the demographic composition of their workforce to determine the potential impact and ROI of implementing or expanding student loan assistance programs. For expert guidance on student loan benefit implementation, visit Clarity Benefit Solutions.

Trump Accounts: a brand new employee benefit for child savings

The OBBBA introduces an entirely new category of employee benefit: Trump Accounts, structured like traditional IRAs but designed specifically for child savings. These accounts represent a significant opportunity for employers to support employees' family financial goals while providing valuable tax advantages.

Employers can contribute up to $2,500 annually per child, with total annual contributions (including any employee contributions) capped at $5,000 per child. Both limits are indexed for inflation, ensuring the benefit's value grows over time. The accounts have specific parameters:

• Age restrictions for distributions - no withdrawals permitted before age 18
• Contribution cutoff - no contributions allowed after the calendar year the beneficiary turns 17
• Tax advantages - similar to traditional IRA structure for child savings

Children born between 2025 and 2028 will receive a special government incentive: a one-time $1,000 contribution, making these accounts immediately valuable for families with young children. This government contribution, combined with potential employer contributions, creates a compelling savings opportunity for employee families.

Implementation as an employee benefit requires careful planning. Organizations must develop written plan documents and conduct non-discrimination testing, similar to other qualified benefit plans. The administrative complexity is significant, but the potential impact on employee satisfaction and retention may justify the investment, particularly for organizations with:

• Younger workforces - where family formation is common
• Family-oriented benefit philosophies - emphasizing long-term financial wellness
• Competitive talent markets - where unique benefits provide differentiation

Trump Accounts become available starting in 2026, giving employers time to evaluate their workforce demographics, assess potential participation rates, and develop implementation strategies. Organizations should consider how these accounts fit within their broader benefits philosophy and whether they align with employee needs and organizational goals. 

Enhanced child tax credit: more money for working families

The OBBBA significantly enhances the child tax credit, providing immediate financial relief for working families. The changes include several key improvements:

• Increased nonrefundable credit - to $2,200 per child beginning in 2025, indexed for inflation
• Permanent refundable credit - $1,400 refundable child tax credit, adjusted for inflation
• Higher income thresholds - permanent increased phaseout thresholds of $200,000 for single filers and $400,000 for joint filers
• Additional dependent support - $500 nonrefundable credit for other qualifying dependents

These enhancements ensure more families can benefit from the full credit amount while expanding support beyond traditional child tax credit recipients.

While employers don't directly provide child tax credits, these changes significantly impact employee financial wellness and take-home pay. The enhanced credits can reduce employees' tax liability and increase their disposable income, potentially affecting their participation in voluntary benefits, retirement plan contributions, and overall financial stress levels.

Employers should consider how these changes might influence employee benefit preferences and financial decision-making. The increased take-home pay might enable:

• Higher voluntary benefit participation - as employees have more discretionary income
• Increased retirement contributions - with reduced financial pressure
• Improved productivity and job satisfaction - through reduced financial stress

Transportation and commuting benefits: What's changed and what hasn't

The OBBBA makes important distinctions between different types of transportation benefits, with some remaining unchanged while others face new tax implications.

Transit and Parking Benefits (Unchanged)

Transit and parking benefits remain tax-advantaged and continue to be indexed annually. The current limit of approximately $300 per month for qualified parking and transit passes remains unchanged, providing employers and employees with continued access to these valuable pre-tax benefits.

Key features that remain:

• Monthly limits indexed for inflation
• Pre-tax treatment for both employer-provided and employee-purchased benefits
• Coverage for public transit passes, vanpools, and qualified parking

Important update for non-profit organizations: The OBBBA repeals the Unrelated Business Taxable Income (UBTI) rule for transportation fringe benefits, allowing tax-exempt employers to offer commuter benefits without incurring organizational tax liability. This removes a significant administrative burden for non-profit organizations that previously faced tax complications when providing transportation benefits.

Bicycle and Moving Expense Benefits (Now Taxable)

The OBBBA permanently eliminates the tax-free treatment for bicycle commuting reimbursements and moving expense benefits. These changes affect different employee populations:

• Bicycle Commuting: Employers can continue reimbursing bicycle commuting expenses, but these payments now constitute taxable income to employees. Organizations currently offering this benefit must transition to post-tax reimbursement or eliminate the program entirely.
• Moving Expenses: Previously tax-free moving expense reimbursements are now permanently taxable to employees, with limited exceptions for military personnel.

Implementation Considerations

Organizations must take several steps to ensure compliance:

• Communication: Affected employees need advance notice of the tax implications for bicycle commuting and moving expense reimbursements.
• Payroll Adjustments: Systems must be updated to properly withhold taxes on previously tax-free benefits.
• Policy Evaluation: Employers should determine whether to continue offering these benefits on a post-tax basis or explore alternative transportation support options.

Why This Matters: These changes reinforce operational continuity for major transportation benefits while requiring careful attention to avoid errors in benefit descriptions or payroll withholding for the affected programs.

Implementation timeline: what employers need to do when

2025 immediate actions

The enhanced child tax credit changes take effect immediately, affecting employee paychecks through adjusted withholding calculations. Employers should ensure payroll systems reflect the new credit amounts and communicate these changes to employees. Key immediate actions include:

• Payroll system verification - ensuring accurate withholding calculations
• Employee communication - explaining increased take-home pay
• HSA telehealth coverage updates - implementing retroactive coverage expansion

The retroactive HSA telehealth coverage also requires immediate attention, with organizations needing to update plan communications and ensure employees understand their expanded benefits.

2026 major implementation year

2026 represents the primary implementation year for most OBBBA changes. This year demands comprehensive preparation across multiple benefit categories:

• Dependent Care FSA expansion - limits increase to $7,500, requiring plan document amendments and system updates
• DPC integration with HSA eligibility - potentially affecting plan design and employee education
• Bronze and catastrophic plan HSA eligibility - requiring updated eligibility verification processes
• Trump Accounts availability - demanding comprehensive program development for employers choosing to offer this benefit

Key action items by timeline

Third quarter 2025 should focus on foundational preparation:

• Plan document review and amendment planning - working with legal counsel and benefits consultants
• Compliance assessment - ensuring readiness for 2026 changes
• Vendor coordination - preparing administrative systems and partnerships

Fourth quarter 2025 requires intensive communication and preparation:

• Employee communication campaigns - preparing for 2026 open enrollment
• Educational material development - covering new benefits and expanded eligibility
• System testing and updates - ensuring technological readiness

First quarter 2026 demands execution and monitoring:

• System updates and new benefit launches - implementing all changes simultaneously
• Ongoing regulatory guidance monitoring - staying current with implementation details
• Employee support and education - ensuring successful adoption of new benefits

Strategic opportunities: maximizing the benefits for your organization

The OBBBA creates unprecedented opportunities for employers to differentiate their benefits packages and enhance employee value propositions. Organizations should conduct comprehensive reviews of current benefit strategies, evaluating how new options align with workforce demographics, competitive positioning, and organizational goals.

Return on investment analysis becomes crucial for new benefit offerings. Each major change requires different implementation approaches:

• Trump Accounts - significant administrative complexity but potential for strong employee engagement
• Expanded HSA eligibility - broader employee base with relatively straightforward implementation
• Increased Dependent Care FSA limits - immediate value for working families with minimal administrative burden

Organizations should analyze their workforce composition to determine which changes will provide the greatest impact and value.

Competitive advantage assessment involves understanding how these changes affect industry benefit standards and employee expectations. Organizations that quickly adapt to offer new benefits may gain recruitment and retention advantages, while those that lag risk losing competitive position in talent markets. Key considerations include:

• Industry benchmarking - understanding how competitors might respond
• Talent market analysis - identifying which benefits matter most to target employees
• Differentiation opportunities - leveraging unique combinations of new benefits

Employee communication and education strategies become critical for maximizing benefit utilization and employee satisfaction. The complexity of these changes requires comprehensive educational campaigns, potentially including:

• Webinar series - explaining new benefits and eligibility changes
• One-on-one consultations - for complex benefit decisions
• Enhanced enrollment support - during open enrollment periods
• Ongoing education - throughout the year to maximize utilization

Compliance and administrative considerations

Plan document amendments represent a significant administrative requirement across multiple benefit types. Organizations must work with legal counsel to ensure all changes are properly documented and comply with regulatory requirements. Key areas requiring attention include:

• HSA plan eligibility criteria - updating for telehealth, DPC, and Bronze/catastrophic plan changes
• Dependent Care FSA provisions - reflecting new contribution limits
• Student loan assistance program documentation - ensuring permanent status compliance
• Trump Account plan design - if offering this new benefit

Non-discrimination testing implications affect several new benefits, particularly Trump Accounts, requiring careful analysis and ongoing monitoring.

Payroll system updates and integration requirements demand coordination with technology vendors and internal IT teams. The complexity of implementing multiple changes simultaneously requires:

• Careful project management - coordinating multiple system updates
• Comprehensive testing - ensuring accuracy across all benefit types
• Vendor coordination - managing relationships with benefits administration providers
• Employee communication - explaining system changes and new processes

Vendor coordination becomes essential for benefits administration, particularly for new offerings like Trump Accounts that may require specialized administrative support. Organizations should evaluate current vendor capabilities and consider whether additional partnerships or services are needed.

Compliance Checklist for Employers 

Required plan document updates

• HSA Plans: Update eligibility criteria for telehealth coverage, DPC arrangements, and Bronze/catastrophic plan compatibility
• Dependent Care FSA: Amend contribution limits to $7,500 and address nondiscrimination testing procedures
• Section 125 Cafeteria Plans: Integrate CHOICE Arrangement provisions and pre-tax premium payment options
• Student Loan Assistance: Update documentation to reflect permanent status and inflation adjustments
• Trump Accounts: Develop comprehensive plan documents if offering this new benefit
• Transportation Benefits: Update policies to reflect taxable treatment of bicycle commuting and moving expenses

Payroll System Adjustments

• Tax Withholding: Update calculations for enhanced child tax credits
• HSA Contributions: Ensure system accommodates expanded eligibility criteria
• DCAP Limits: Increase maximum contribution limits to $7,500 for 2026
• Transportation Benefits: Implement taxable treatment for bicycle commuting reimbursements
• CHOICE Arrangements: Enable pre-tax deductions for individual premium payments
• Trump Accounts: Set up contribution tracking and limits if offering benefit

Notices and Timelines by Benefit Type

• HSA Telehealth (Immediate): Update plan communications about retroactive coverage expansion
• Child Tax Credit (2025): Communicate increased take-home pay to employees
• CHOICE Arrangements (2026): Provide 60-day advance notice to eligible employees
• Dependent Care FSA (2026): Announce increased limits during open enrollment
• Trump Accounts (2026): Comprehensive education campaign if offering benefit
• Transportation Benefits (Ongoing): Notify affected employees of tax implications for bicycle commuting

Key Compliance Deadlines

• Q3 2025: Begin plan document amendments and vendor coordination
• Q4 2025: Complete employee education campaigns and system testing
• January 1, 2026: Implement most major changes including DCAP limits, HSA expansions, and new benefit offerings
• Ongoing: Monitor nondiscrimination testing results and regulatory guidance updates

Preparing for a new benefits landscape

The One Big Beautiful Bill Act represents a watershed moment for employee benefits, creating opportunities for organizations to enhance their value propositions while requiring significant administrative and strategic adjustments. The changes span multiple benefit categories and implementation timelines, demanding comprehensive planning and execution.

Success in this new landscape requires several key approaches:

• Proactive preparation - beginning planning and implementation well before deadlines
• Strategic evaluation - carefully assessing which new opportunities align with organizational goals
• Effective communication - ensuring employees understand and can utilize new benefits
• Comprehensive compliance - meeting all regulatory requirements across multiple benefit types

Organizations that view these changes as competitive advantages rather than compliance burdens will be best positioned to attract and retain top talent while providing meaningful financial wellness support to their workforce.

The expanded opportunities for tax-advantaged employee savings, combined with new benefit categories like Trump Accounts, create a richer, more diverse benefits environment. However, this complexity also demands:

• Greater expertise - in benefits administration and strategic planning
• More sophisticated management approaches - for diverse benefit portfolios
• Enhanced employee education - to maximize benefit utilization and satisfaction
• Ongoing monitoring - of regulatory changes and implementation guidance

Now is the time for comprehensive benefits strategy reviews, early preparation for implementation requirements, and strategic planning for leveraging these changes to enhance organizational competitiveness and employee satisfaction. The organizations that act quickly and thoughtfully will be best positioned to maximize the opportunities created by this landmark legislation.