The One Big Beautiful Bill Act and Changes to Certain Workplace Benefits

The OBBB Act also includes provisions which expand some workplace benefits, including broader use of health savings account (HSA) funds, increased dependent care flexible spending account (FSA) annual limits, expanded employer childcare tax credits, and permanent implementation of the student loan repayments as eligible expenses under qualified educational assistance programs. The OBBB Act also includes provisions that limit or take away favorable tax treatment for certain workplace fringe benefits, including moving expenses and bicycle commuting expenses.

Part I: Workplace Benefits Expanded

Broader Use of HSA Funds in 2026. The OBBB Act expands the permissible use of HSA funds to include:

• Direct Care Provider Service Arrangements. Beginning in 2026, HSA funds will be allowed to pay for direct primary care (DPC) services – where individuals pay their primary care provider a flat monthly or annual fee for a defined set of services – up to maximum monthly limits. For 2026, the maximum monthly limits are $150 per month for an individual and $300 for a family, which may be adjusted for inflation in future years. Fees paid for a DPC arrangement are treated as medical expenses, rather than insurance.
• Telehealth Arrangements. The OBBB Act also permanently extends the ability of a high-deductible health plan (HDHP) to offer telehealth benefits to employees who have not yet met their deductible (also known as “first-dollar coverage”), without disqualifying them from participation in an HSA.
• Bronze and Catastrophic Plans. Beginning in 2026, an employee who enrolls in an individual bronze or catastrophic plan on the marketplace exchange should be treated as participating in a qualifying HDHP and eligible to participate in an HSA.

Dependent Care FSA Limit Increased to $7,500.

The annual contribution limit for a dependent care FSA has been permanently increased from $5,000 to $7,500, effective for plan years beginning after December 31, 2025. This change allows workers to set aside more pre-tax dollars for childcare and elder care expenses. A review of nondiscrimination testing results to ensure the increased limits will be available to most employees could be instructive. Employers must update plan documents by December 31, 2025 for plan years starting January 1, 2026 if the increased benefits will be offered.

Expansion of Employer Childcare Tax Credit.

The OBBB Act significantly expands the Employer-Provided Childcare Tax Credit available to employers that provide childcare services to employees:

• The credit increased from 25% to 40% of qualified childcare facility expenditures (or 50% of qualified childcare facility expenditures for small businesses).
• The annual credit cap was raised from $150,000 to $500,000 (or $600,000 for small businesses).
• Employers can also now pool resources to jointly operate or contract with childcare facility providers.
• Qualified expenses for purposes of the Employer-Provided Childcare Tax Credit have been expanded to include facility costs, contracted services, employee training, and scholarships.

Student Loan Repayments as Qualified Educational Assistance.

Employers may continue to offer tax-free student loan repayment assistance under Section 127 educational assistance programs, with a cap of $5,250 per employee per year. This provision, originally temporary, has now been made permanent under the OBBB Act. Payments can be made directly to lenders or employees and are excluded from taxable income.

Part II: Workplace Benefits with Limits on Favorable Tax Treatment

Moving Expenses.

Under prior law, employers were allowed to offer certain relocation packages as non-taxable reimbursements (subject to certain limits). In 2017, these tax-free relocation benefits were temporarily suspended and the OBBB Act makes this temporary suspension permanent. Employers may continue to offer relocation packages but should include those employer-provided moving expenses in the employee’s gross income.

Bicycle Commuting Reimbursements.

An employer may provide some transportation fringe benefits as tax-free reimbursements to cover an employee’s commute to work. Under prior law, these tax-free transportation fringe benefits could cover bicycle purchases, repairs, and storage if the bicycle was used to commute to work. In 2017, these tax-free bicycle commuting reimbursements were temporarily suspended and the OBBB Act makes this temporary suspension permanent. Employers who provide reimbursements to employees for bicycle commuting expenses must now include such reimbursements in the employee’s gross income.