OBBBA’s impact on employee benefit plans, programs, and arrangements

OBBBA provisions affecting existing benefit plans

Safe harbor allowing plans to be treated as high-deductible health plans (HDHPs) despite not having a deductible for telehealth services (Section 71306)

The OBBBA permanently and retroactively extends the telehealth safe harbor for HDHPs and HSA eligibility for plan years beginning after December 31, 2024. Among other things, the telehealth HDHP safe harbor expands access to telehealth and other remote-care services for millions of individuals and dependents who are covered by HDHPs. The previous, COVID-era safe harbor temporarily permitted HDHPs to cover telehealth and remote-care services on a first-dollar basis without jeopardizing eligibility for HSA contributions through December 31, 2024. The retroactive effective date ensures that there is no interruption in the safe harbor, and HDHPs may continue covering these services without cost-sharing.

As a result of the permanent extension of the telehealth HDHP safe harbor, digital health and telehealth providers, virtual and remote care providers, employer plan sponsors, insurers, and third-party administrators may reassess and update their services and coverage for HDHP participants. For example, employer plan sponsors may elect to reinstate free or low-cost coverage for telehealth services retroactively to January 1, 2025, or choose to do so prospectively for the next plan year, if at all.

Individuals may enroll in qualifying direct primary care (DPC) arrangements without jeopardizing their status as HSA-eligible (Section 71308)

The OBBBA prevents certain DPC arrangements from being treated as disqualifying coverage for purposes of determining eligibility to participate in an HSA and allows the use of HSA funds to pay for such DPC arrangements. The OBBBA defines DPC arrangements as a program under which a participant pays a flat, monthly fee up to an annually indexed maximum that covers primary care services provided to them by a primary care practitioner.

Under prior law, coverage under a DPC would, in most cases, disqualify an individual from HSA eligibility since these arrangements routinely cover non-preventive care services prior to an individual meeting their HDHP plan deductible. To qualify for the favorable treatment under the OBBBA, the DPC participant must not be required to pay more than $150 per month in membership fees (indexed for inflation) for individual coverage or $300 per month (indexed for inflation) for family coverage. An individual who is enrolled in both a qualifying DPC arrangement and an HDHP remains HSA eligible. The fees an individual pays for the DPC are treated as a qualified medical expense for HSA purposes, which means that these fees may be paid out of an HSA tax-free. The DPC provisions of the law take effect for months beginning after December 31, 2025.

Increase in dependent care flexible spending account limits and employer-provided child care credit (Sections 70404 and 70401)

The OBBBA increases, for tax years beginning after December 31, 2025, the maximum amount that can be excluded from income on a pretax basis in a dependent care assistance program (frequently referred to as a dependent care flexible spending account (FSA)) to $7,500 (or $3,750 for a married individual filing separately). Previously, the maximum contribution was $5,000 (or $2,500 for a married individual filing separately).

The law also enhances the credit available to employers that provide childcare services to their employees. After December 31, 2025, the maximum employer credit for employer-provided childcare is 40% of qualified childcare expenses (up to $500,000). In addition, small businesses may qualify for a credit of 50% of qualified childcare expenses (up to $600,000).

Student loan repayment through an educational assistance program (EAP) (Section 70412)

Since 2020, employers have been allowed to use an EAP (not to be confused with an employee assistance plan) to reimburse an employee’s qualified student loans on a tax-free basis up to $5,250 through December 31, 2025. The OBBBA permanently extends the ability of employers to reimburse or pay for an employee’s student loans on a tax-free basis under Section 127 of the Internal Revenue Code (the Code) through an EAP. For taxable years beginning after 2026, the $5,250 per employee per year reimbursement/payment limit will be indexed for inflation.

OBBBA provisions that represent new benefit-related opportunities

Expansion of HSAs to allow all bronze and catastrophic plans to be considered eligible plans for HSAs (Section 71307)

For policies beginning on or after January 1, 2026, the OBBBA for the first time permits bronze and catastrophic plans in the individual market offered on state marketplaces to be treated as HDHPs. Under prior law, bronze or catastrophic plans would not have qualified as such. As a result of the OBBBA, individuals enrolled in a bronze or catastrophic plan through the health insurance marketplace may be considered HSA-eligible.

Trump accounts (Section 70204)

The OBBBA makes available so-called “Trump accounts” beginning in July 2026. From and after that date, parents can open a Trump account for children younger than 18 years who have a Social Security number. Parents of other individuals can contribute a total of up to $5,000 annually (adjusted for inflation in years after 2025) until the account beneficiary turns 18. Employers can contribute up to $2,500 (adjusted annually for inflation) into the Trump accounts of employees and their dependents. While it is not yet clear, employer contributions will likely count toward the overall $5,000 limit. Contributions must be invested in a mutual fund or exchange-traded fund made up entirely of equities, designed to comprise equity investments in primarily United States companies. While Trump accounts are taxed in a manner similar to individual retirement accounts (IRAs), contributions to Trump accounts are not tax-deductible. Distributions from Trump accounts are not allowed until January 1 of the year in which the account owner reaches age 18.

The law also establishes a federal contribution pilot program under which the federal government will provide a one-time contribution of $1,000 for children born in the United States between 2025 and 2028 if their parents elect to participate.

The employer credit for paid family and medical leave (Section 70304)

The OBBBA permanently extends, for tax years beginning after December 31, 2025, the employer credit for family and medical leave (FML) paid under the Family and Medical Leave Act. The amount of the credit rate depends on how much employers provide for paid FML relative to wages normally paid. If paid leave is 50% of wages normally paid to an employee, the tax credit is 12.5% of wages paid. If paid leave is 100% of wages normally paid to an employee, the tax credit is 25% of wages paid. The credit rate increases from 12.5% to 25% ratably as leave wages increase from 50% to 100% of wages normally paid. No credit can be claimed for paid FML that is less than 50% of wages normally paid. Nor can a credit can be claimed for wages paid on leave that exceed an employee’s normal wage rate.

The law also expands eligibility to include paid family and medical leave (PFML) insurance premiums and leave taken by newer employees.

Other selected tax-related provisions affecting individuals irrespective of employment status

Adoption credit (Section 70402)

For tax years beginning in 2025, $5,000 of the adoption tax credit (subject to inflation adjustments) is now refundable.

Code Section 529 savings accounts (Section 70413)

From and after July 4, 2025, the OBBBA modifies Code Section 529 savings accounts such that grade K–12 expenses include not just those for tuition but also for books, materials, testing fees, tutoring costs, and certain other expenses. The law also increases, for tax years beginning after December 31, 2025, the annual limit for K–12 tuition expenses from $10,000 to $20,000 and permits the use of the 529 funds for various post-secondary credentialing programs.

Transportation benefits and moving expenses (Sections 70112 and 70113)

The OBBBA either eliminated or simply permitted to expire certain tax-advantaged benefits for tax years beginning after December 31, 2025. These include transportation benefits (bicycle commuting expense reimbursements for employees will be eliminated from the definition of qualified transportation fringe benefits) and most moving expenses.

Action items

In light of the OBBBA, plan sponsors should consider the following measures, among others, relative to their employee benefit plans:

• Reevaluate dependent care FSAs. Assess whether to adopt the higher $7,500 limit and perform nondiscrimination testing to avoid an increased risk of tax issues for highly compensated employees.
• Update telehealth coverage. Consider retroactively or prospectively reinstating first-dollar telehealth and other remote-care service coverage under HDHPs.
• Plan for direct primary care integration. Identify whether to adopt or further explore DPC arrangements (or ensure compliance for existing programs).
• Analyze childcare tax credit opportunities. Review current or potential employer-provided childcare programs in light of expanded tax credits.
• Plan document updates. Evaluate and make any required updates to plan documents in light of the OBBBA and any changes adopted. This could include, for example, plan documents, summary plan descriptions, and other employee communications.

For more information on these changes, please contact your regular McDermott lawyer or one of the authors listed below.