The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025. This budget reconciliation bill includes several provisions that affect employers. Here’s a look at the most impactful changes.
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Changes to Employee Benefit Plans
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- For plan years beginning after December 31, 2024, the bill permanently allows HDHPs to offer telehealth benefits before the deductible is met without jeopardizing HSA eligibility
- Starting in 2026, individuals may participate in direct primary care (DPC) arrangements with monthly fees up to $150 for individuals or $300 for families (indexed annually) without losing HSA eligibility, and these DPC fees can be paid tax-free from an HSA
- Effective January 1, 2026, the maximum annual limit for dependent care flexible spending accounts (FSAs) increases to $7,500 for single individuals and married couples filing jointly
- Starting in 2026, employer student loan payments or reimbursements up to $5,250 per year (adjusted annually) remain eligible for tax-free treatment under Section 127 educational assistance programs
- Beginning in 2026, allows employers to contribute up to $2,500 per year (indexed after 2027) to a new type of tax-advantaged account for children, called a "Trump Account"
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Permanent Expansion of Paid Family and Medical Leave (PFML) Tax Credit
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- The PMFL tax credit is now permanent, as the law eliminates the expiration date that would have ended the credit after 2025
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Elimination of Taxes on Overtime Compensation and Qualified Tips
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- Effective for tax years 2025-2028, workers earning up to $150,000 ($300,000 joint) can deduct up to $12,500 in qualified overtime pay ($25,000 joint) and up to $25,000 in qualified cash tips (from customary tip-earning occupations) from their taxable income each year
- Employers must separately report overtime and qualifying tips on employee W-2 forms
- Review and update plan documents for alignment with changes
- Consult with legal counsel to amend written plan documents as needed to reflect updated limits, eligibility, and administrative requirements
- Communicate these changes to employees
- Monitor IRS and regulatory guidance
- Adjust payroll systems to accurately track and report overtime compensation and qualifying tips on employees' W-2 forms
Koppinger & Associates is not a law firm and does not provide legal advice. This communication is not legal advice. For legal matters, please consult your attorney.
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