President Trump signed the One Big Beautiful Bill Act (HR 1) on July 4, 2025, which includes tax incentives related to paid family leave, employer-provided child care, telehealth services and education benefits, among others. Several tax credits went from temporary (under the Tax Cuts and Jobs Act of 2017) to permanent, which generally could lead to more employers offering benefits related to those tax credits. For employers making long-term strategic decisions about benefit offerings, a more predictable and stable tax environment could help employers feel more confident that they can continue offering paid family leave, for instance, in the future. New provisions that are temporary could be extended before expiration in future legislation.

The following are highlights of the budget reconciliation package for employers and benefit plan sponsors.

Family-Friendly Benefits (effective January 1, 2026)

1. Paid family and medical leave tax credit: Permanently establishes the employer credit for paid family and medical leave under Internal Revenue Code (IRC) section 45S.
   1. Applies to a percentage of wages paid to employees while on leave or to insurance policy premiums
   2. The credit is not available when paid family leave is mandated by state or local government.
2. Employer-provided childcare tax credit: Permanently increases the amount of qualified child care expenses taken into account for purposes of the IRC section 45F credit to 40% (up from 25%). For eligible small businesses, 50% of expenses are taken into account.
   1. The maximum amount of the credit would increase to $500,000 ($600,000 for small businesses) and will be adjusted for inflation. Employer-jointly owned or operated child care facilities are eligible for the tax credit.
   2. Regulations are expected to implement this part of the law.
3. Dependent care assistance programs: Employees can exclude up to $7,500 of eligible expenses from their income for tax purposes under IRC section 129. The law does not adjust $7,500 for inflation.

High-Deductible Health Plans (HDHPs) and Health Savings Accounts (HSAs)

4. HDHPs permanently can cover telehealth services before the deductible is reached. This provision is effective for plan years beginning after December 31, 2024.
5. Direct primary care arrangements will be compatible for people with HDHPs/HSAs applicable to months beginning after December 31, 2025.
   1. Direct primary care arrangements are defined as primary care services from a primary care practitioner for a fixed periodic fee. Certain lab services are excluded as well as procedures that require general anesthesia and prescription drugs (other than vaccines).
   2. Fees will be treated as medical expenses for tax purposes and HSA dollars can be used to pay fees. The law establishes a monthly fee limit of $150 per month for an individual ($300 for 2 or more individuals) to be adjusted for inflation.
   3. Regulations are expected to implement this part of the law.

Savings Plans and Education Expenses

6. Employer payments to student loans: Permanently allows a tax exclusion of $5,250 per year for employer repayment of student loans.
   1. The law adds an inflation adjustment for the IRC Section 127 qualified educational assistance limit of $5,250 appliable to payments made after December 31, 2025.
7. Trump accounts: New tax-free savings accounts for children under age 18, called Trump accounts, will take the form of individual retirement accounts (IRAs) “as defined in section 408(a) which is not designated as a Roth IRA,” the text of the bill states.
   1. The aggregate limit of contributions (other than exempt contributions) is $5,000 per calendar year. This is set to adjust for inflation after 2027.
      1. Exempt from this limit include qualified general contributions which seem to be federal and/or local governments or a philanthropic organization contribution to a qualified class of account beneficiaries.
      2. More analysis or federal agency guidance may be needed to better understand Trump account contribution provisions.
   2. The law creates IRC Section 128 that allows employer contributions to Trump accounts that are for the exclusive benefit of the employees’ child(ren). Employer contributions with respect to any employee shall not exceed $2,500. This is set to adjust for inflation after 2027.
   3. A Trump account contribution program is a separate written plan.
   4. The law creates a Trump accounts contribution pilot program that would provide a $1,000 tax credit for opening a Trump account for a U.S. citizen child born between Jan. 1, 2025, and Dec. 31, 2028.
      1. The CEO of Dell Technologies pledged on June 9 to match the $1,000 contribution while other CEOs expressed support for contributing to the accounts of their employees’ kids at some level, CNBC reported.
8. Expands Section 529 plan distributions: Allows distributions after July 4, 2025, from IRC section 529 savings plans to be used for educational expenses at an elementary or secondary school, certain tutoring programs, educational therapies for students with disabilities including “occupational, behavioral, physical, and speech-language therapies.” In addition, distributions are allowed for “qualified postsecondary credentialing expenses” (e.g., test fees, continuing education fees).

Fringe Benefits

9. Bicycle commuting and moving expenses: Permanently excludes qualified bicycle commuting reimbursements from the list of qualified transportation fringe benefits. Favorable tax status has been temporarily repealed since 2018, so this is a permanent repeal. Employers may offer bicycle commuting and moving expense reimbursement on a taxable basis.
   1. Employer-provided qualified moving expense reimbursements are allowed in the case of certain members of the Armed Forces and certain members of the intelligence community.

Health Tax Provisions

10. ACA Marketplace and Medicaid Coverage. Provisions include changing premium tax credit eligibility and verification, adding work, school or volunteer requirements for Medicaid enrollees, more frequent Medicaid eligibility verification and adding cost-sharing for higher-income beneficiaries.
    1. Over the next 10 years, the general impact of federal funding cuts to Medicaid and ending enhanced tax credits for the ACA marketplace plans is estimated to boost the number of uninsured people by around 11 million according to a Congressional Budget Office (CBO) letter dated June 4, 2025, and raise premiums, according to KFF analysis. On a speculative note, for employer implications, perhaps people becoming uninsured could look for health coverage through employer-sponsored plans (and it could lead to adverse selection with people with pre-existing conditions favoring this option). Or, instead of employer plans, consumers could enroll in short-term health plans, health care cost-sharing ministries, and other forms of catastrophic coverage that do not comply with ACA requirements (i.e., pre-existing condition exclusions), according to Anna Howard, policy principal at the American Cancer Society Cancer Action Network, KFF Health News reported.
    2. Timing and Outlook: According to Axios’ article Trump bill’s health effects won’t be felt until after midterms, lawmakers “backloaded a lot of the Medicaid and ACA cuts,” said Larry Levitt, executive vice president at KFF. “There will be few tangible effects in health care from this bill before the midterms.” Medicaid work requirements, which account for many of the people projected to become insured, and the increased frequency of Medicaid eligibility checks generally won’t kick in until 2027, per Axios. The budget reconciliation bill doesn’t extend the enhanced premium subsidies which are set to expire as of January 1, 2026 (unless Congress extends them in future legislation). “The fact that this all plays out over a period of time creates an opportunity for opponents to try to delay and overturn,” Levitt told Axios.

Compensation-related provisions

Compensation in the form of tips and overtime wages will temporarily be tax deductible for employees. Employer communications, reporting and other potential actions are still being fleshed out.

• No tax on tips: Temporarily allows above-the-line deduction of up to $25,000 for qualified tips.
• No tax on overtime: Temporarily allows above-the-line deduction of up to $12,500 ($25,000 in the case of a joint return) for qualified overtime compensation received by an individual during a given tax year.

As employers prepare for benefit offerings with plan years starting in 2026, this new law presents considerations regarding paid family leave, student loan repayment and high-deductible health plans (to name a few). Check with your plan service providers and tax professionals regarding other impacts to your benefits programs. The Foundation will track updates as these provisions progress and as federal agency guidance becomes available.

Resources:

How the One Big Beautiful Bill Affects Employee Benefits [Newfront]

President Trump Signs Massive Tax and Policy Bill [PlanSponsor]

One Big Beautiful Bill: The Benefits Provisions [Groom Law Group]

Congress allows first-dollar telehealth coverage for high-deductible health plans in reconciliation bill [Fierce Healthcare]

Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.