July 2025 HR Update

“One Big Beautiful Bill Act” Brings Employee Benefit Changes

On July 4, 2025, President Donald Trump signed a significant tax and spending bill, commonly referred to as the “One Big Beautiful Bill Act” (OBBB Act), into law. The OBBB Act includes changes for employee benefit plans, including provisions that:

• Expand the availability of health savings accounts (HSAs);
• Permanently extend the telehealth exception for high deductible health plans (HDHPs);
• Increase the maximum annual limit for dependent care flexible spending accounts (FSAs);
• Allow employers to help pay employees’ student loans beyond 2025 and make cost-of-living adjustments to the tax exclusion for educational assistance programs; and
• Allow employers to contribute up to $2,500 annually to a new tax-advantaged account for children, called a “Trump Account.”

HSA Expansion

Only eligible individuals can establish HSAs and make HSA contributions (or have them made on their behalf). To be HSA-eligible, an individual must:

• Be covered by an HDHP;
• Not be covered by any health plan that provides coverage below the minimum required HDHP deductible, with some limited exceptions;
• Not be enrolled in Medicare; and
• Not be eligible to be claimed as a dependent on another person’s tax return.

Effective Jan. 1, 2026, the OBBB Act expands HSA eligibility by allowing individuals with direct primary care (DPC) arrangements to make HSA contributions if their monthly fees are $150 or less ($300 or less for family coverage), with limits adjusted annually for inflation. A DPC arrangement is a subscription-based health care delivery model where individuals pay a fixed periodic fee for access to medical care consisting solely of primary care services. The OBBB Act allows individuals to use HSA funds to pay DPC fees as medical care expenses.

Also, to expand the accessibility of HSAs in the individual market, the OBBB Act categorizes all bronze and catastrophic plans available through an Affordable Care Act (ACA) Exchange as HDHPs. This change is effective Jan. 1, 2026. Bronze plans have the highest deductibles and lowest premiums among the individual plans’ four categories (or metal levels). Catastrophic plans have lower premiums than bronze plans and very high deductibles. This information will be helpful for employers reimbursing individual coverage via QSEHRAs or ICHRAs.

HDHP Telehealth Exception

To be eligible for HSA contributions, individuals cannot be covered by a health plan that provides benefits, except preventive care benefits, before the minimum HDHP deductible is satisfied for the year. Historically, individuals covered by telehealth programs that offered free or reduced-cost medical benefits were not eligible for HSA contributions.

A pandemic-related relief measure temporarily allowed HDHPs to waive the deductible for telehealth services without impacting HSA eligibility. This relief expired at the end of the 2024 plan year. However, the OBBB Act permanently extends HDHPs’ ability to provide telehealth and other remote care services before plan deductibles are met, without jeopardizing HSA eligibility. This extension applies retroactively to plan years beginning after Dec. 31, 2024.

Dependent Care FSAs

Employers can provide dependent care assistance benefits for their employees tax-free, subject to a maximum annual limit. These benefit plans are called dependent care FSAs (or dependent care assistance programs, DCAPs). Effective Jan. 1, 2026, the OBBB Act increases the maximum annual limit for dependent care FSAs to $7,500 for single individuals and married couples filing jointly and $3,750 for married individuals filing separately (up from $5,000 and $2,500, respectively). Lawmakers have not adjusted the new limit for inflation.

Educational Assistance Programs – Student Loans

Employers can offer programs to provide employees with undergraduate or graduate-level educational assistance. These programs can pay for employees’ books, equipment, supplies, tuition and other fees. They can also pay principal and interest on employees’ student loans. While the option to use educational assistance programs for student loans was to expire on Dec. 31, 2025, the OBBB Act permanently extends this student loan payment option.

Also, tax-free benefits under an educational assistance program are limited to $5,250 per employee per year. Typically, educational assistance provided above this level is taxable as wages. Effective for taxable years beginning after 2026, the OBBB Act annually adjusts the $5,250 limit for inflation.

Invest America/“Trump Accounts”

The OBBB Act creates a new tax-advantaged savings account for children under 18, named a “Trump Account.” Effective in 2026, Trump Accounts will operate similarly to individual retirement accounts, or IRAs, where earnings grow tax-deferred. Generally, annual contributions are limited to $5,000 per child (as adjusted annually for inflation beginning after 2027). The OBBB Act provides that children born in 2025-2028 may be eligible for a $1,000 contribution from the federal government.

Employers may make tax-free contributions to the Trump Account of an employee or an employee’s dependent of up to $2,500 per year (as adjusted annually for inflation beginning after 2027). These programs will require a written plan document. They will be subject to some of the same tax rules that apply to dependent care FSAs, such as annual nondiscrimination testing and employee notifications. However, due to the lack of a tax exclusion for contributions, 529 plans may still be more suitable for saving for educational purposes.

PFML Tax Credits

The 2017 Tax Cuts and Jobs Act includes the PFML tax credit. Before the amendments, it was equal to a percentage of wages paid through Dec. 31, 2025, to qualifying employees who took family and medical leave.

To be eligible for the credit, an employer must provide at least two weeks of paid family and medical leave at a payment rate of at least 50% of an employee’s regular pay rate. The credit does not apply to PFML required by law, vacation, personal or sick leave.

OBBBA Amendments

Most importantly, the OBBB Act makes the PFML tax credit permanent by removing the sunset provision that would have seen the credit expire at the end of 2025.

The OBBB Act amended the tax credit in other ways, including allowing employers to take the credit for a percentage of wages and any PFML insurance premiums they pay. As part of a growing trend, states have begun allowing insurance carriers to sell employers policies that cover the cost of PFML provided voluntarily. Moreover, the OBBB Act enables the PFML tax credit for this premium expense even if none of the employer’s workers take PFML.

The OBBB Act also exempts employers taking the credit from the requirement to have a written PFML policy containing specific provisions. Under the new exception, an employer with a substantial and legitimate business reason for failing to provide the required written policy may be eligible for the tax credit.

Furthermore, the tax credit was previously available only for PFML taken by employees who had worked for the employer for at least one year. Under the OBBB Act amendments, the work tenure requirement is now six months.

Another amendment stipulates that the PFML credit will apply only to leave taken by employees who work at least 20 hours per week.

Employer Takeaway

The bill is far less sweeping than early drafts. However, it still gives employers several valuable new tools—especially the permanent telehealth safe‑harbor, expanded Dep‑Care FSA, and lasting student‑loan repayment programs. In preparation, employers should review the following:

• HDHPs and Telehealth – If your HDHP renewed before 7/1/25, first‑dollar telehealth coverage is already permissible. Coordinate with your carrier/TPA to remove interim cost‑share riders.
• Audit Section 125 & §127 documents – Amend cafeteria plan text this fall to:
  • add the $7,500 Dep‑Care FSA limit effective 2026;
  • reference the indexed §127 cap and permanent student‑loan feature.
• Decide on Trump Accounts – Evaluate whether offering a $2,500 employer seed makes sense for retention; set up draft plan docs and payroll codes before Treasury issues model forms.
• Check on PFML – Employers that provide PFML voluntarily should review the amendments to determine whether they might qualify for this potentially valuable tax credit.
• Communicate early – Build 2026 open‑enrollment comms explaining higher §125 & §127 limits, HSA/DPC flexibility, Trump Account contributions (if applicable), etc.

Other Provisions in the OBBB Important for HR Professionals

There are parts of the Act (not employee-benefit related) that may have an impact on HR professionals. Specifically:

Taxes on Overtime