July 9, 2025

OBBB employer provisions

The One Big Beautiful Bill Act (OBBB Act), which President Trump signed into law on July 4, 2025, includes changes to a variety of employee benefits, including the expansion of health savings accounts (HSA) and an increase in the exclusion for dependent care assistance flexible spending accounts (FSA). In addition, the OBBB Act creates tax-favored Trump accounts for children and expands qualified tuition plans (529 plans). The law also repeals the bicycle commuting reimbursement exclusion and makes the employer credit for providing paid FMLA leave permanent.

HSA. The OBBB Act provides that a high deductible health plan (HDHP) will not fail to be treated as an HDHP if it offers telehealth services with no cost sharing or is a bronze or catastrophic plan offered in the individual market on an Exchange. In addition, individuals enrolled in an HDHP may also enroll in a direct primary care arrangement while still maintaining an HSA.

The amendments regarding bronze and catastrophic plans and direct primary care arrangements are effective for months beginning after December 31, 2025. The amendment regarding telehealth plans is effective for months beginning after December 31, 2024.

FSA. Effective for tax years beginning after December 31, 2025, the exclusion for dependent care assistance is increased up to $7,500 annually ($3,750 in the case of a married individual filing separately). Currently, the maximum annual exclusion for contributions to a dependent care assistance program is $5,000 ($2,500 in the case of a married individual filing separately).

Trump accounts. The OBBB Act creates tax-favored Trump accounts for children. The accounts operate in a similar manner to individual retirement accounts. A pilot program will seed the accounts of children born after December 31, 2024, and before January 1, 2029, who are U.S. citizens at birth, with $1,000.

Contributions. Annual contributions, not including exempt contributions, are limited to $5,000, adjusted for inflation after 2027. Exempt contributions are qualified rollover contributions, any "qualified general contribution," or a contribution provided pursuant to the pilot program set forth in I.R.C. § 6434. No deduction is allowed under I.R.C. § 219 for any contribution made before the first day of the calendar year in which the account beneficiary turns 18.

Coordination with IRA rules. The rules of I.R.C. § 408(k) regarding simplified employee pensions and I.R.C. § 408(p) regarding simple retirement accounts do not apply to Trump accounts. In addition, the rules of I.R.C. §408(d) and (i) do not apply to a Trump account for any tax year beginning before the calendar year in which the beneficiary attains age 18.

In a tax year beginning before the first day of the calendar year in which the beneficiary attains age 18, a contribution to a Trump account will not be taken into consideration in applying any contribution limit to any IRA plan other than a Trump account.

Employer contributions. Amounts paid by an employer to a Trump account of the employee or an employee’s dependents in accordance with a Trump account contribution program will not be includible in the employee’s gross income. The excludible amount cannot not exceed $2,500, adjusted for inflation beginning after 2027. A Trump account contribution program is a written plan of the employer for the exclusive benefit of its employees to provide contributions to the Trump accounts of employees or their dependents. The plan must meet requirements similar to those for I.R.C. §129 dependent care assistance programs.

These provisions apply to tax years beginning after December 31, 2025.

Qualified tuition plans (529 plans). The expenses that are considered qualified higher education expenses (QHEEs) for elementary or secondary public, private, or religious schools are expanded under the OBBB Act. The allowable expenses include:

tuition,
curriculum and curricular materials,
books or instructional materials,
online education materials,
certain fees for tutoring or educational classes outside of the home,
fees for specified tests,
fees for dual enrollment in an institute of higher education,
and certain educational therapies for students with disabilities.

The limitation on the amount of qualified education expenses of a 529 plan in connection with the designated beneficiary’s enrollment or attendance at an elementary or secondary school during the tax year, whether public, private, or religious school is increased from $10,000 to $20,000 per year.

Certain post-secondary credentialing expenses treated as QHEEs. Qualified postsecondary credentialing expenses are added to the definition of QHEEs. Qualified postsecondary credentialing expenses include:

tuition, fees, books, supplies and equipment needed for the enrollment or attendance of a beneficiary in a recognized postsecondary credential program or any other expense incurred in connection with such enrollment or attendance if such expense would be considered a QHEE in connection with enrollment or attendance at an eligible education institution;
fees for testing, if the testing is required to obtain or maintain a recognized postsecondary credential; and
fees for continuing education if it is required to maintain a recognized postsecondary credential.

The OBBB Act also provides that individuals are permanently allowed to roll over amounts from qualified tuition plans to an ABLE account if the ABLE account is owned by the same designated beneficiary of the 529 plan or a member of the designated beneficiary’s family. The additional contribution limitation to ABLE accounts is permanent for contributions made by the designated beneficiary with certain limitations.

Student loans. The exclusion from an employee‘s gross income of certain payments made by an employer on a qualified student loan is permanent. The maximum amount of the exclusion for education assistance provided by an employer is adjusted for inflation for tax years beginning after 2026.

Bicycle commuting reimbursement exclusion. The exclusion for qualified bicycle commuting reimbursement is repealed for tax years after December 31, 2025. The calculation of the maximum amount that may be excluded as a qualified transportation fringe benefit adds one year to the measurement of cost-of living adjustment from 1998 to 1997.

Meals provided at the convenience of the employer. Beginning in 2026, business expense deductions are disallowed for employer-provided meals that are excludable from an employee’s income or are de minimis fringes. However, employers may deduct these expenses if the meals are sold or provided to employees on certain vessels, oil or gas platforms, or drilling rigs and their support camps. In addition, the exception to the 50-percent deduction limit for meals is expanded to apply to crew members of commercial fishing vessels.

Employer credit for paid family and medical leave. The OBBB Act makes the I.R.C. § 45S employer credit for providing paid FMLA leave permanent, with three expansions of the prior law:

(1) Eligible employers may claim the credit for a percentage of premiums paid or incurred for insurance policies that provide paid leave, or for wages paid during employees’ leave, but not both;

(2) The credit is available in all states, including those with paid leave programs or paid leave requirements; and

(3) The minimum employee work requirement is lowered from one year to six months and eligible employees must work at least 20 hours per week.

The provision includes an aggregation rule requiring that employers within the same controlled group under the rules of I.R.C. § 414(b) and (c) are treated as a single employer. All members of the controlled group must have a written paid FMLA policy and meet all the requirements for the credit, unless the employer has a substantial and legitimate business reason (other than line of business, wage rate, or job category) for treating some employees differently. These amendments related to the employer credit apply to tax years beginning after December 31, 2025.

SOURCE: H.R.1.

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