Our firm has been inundated with requests for clarity regarding the so-called One Big Beautiful Bill Act (“OBBBA”) signed into law by President Trump on July 4th, 2025, and employee benefits and executive compensation professionals are busy planning for application of the new tax provisions which will impact the programs they support. Below are a few points drawn from recent client inquiries:
Executive Compensation
The OBBBA modifies Section 162(m) of the Internal Revenue Code, which caps the tax deduction for compensation paid by publicly held corporations to covered employees at $1 million per taxable year. Under the new rules, this limitation now applies on an aggregated basis across controlled groups. As a result, all compensation paid to a covered employee by any member of the group counts toward the $1 million threshold, and the deduction limit is allocated among group members proportionally based on the amount each pays to the employee. Covered employees are determined group-wide, including the principal executive officer, principal financial officer, and the five highest-compensated employees for years after 2026. These changes take effect for taxable years beginning after December 31, 2025, and aim to prevent circumvention of the cap through affiliated entities. Audit recommendation: Public companies within controlled groups should assess their executive pay programs to address potential deduction shortfalls and ensure proper allocation.
Health & Wellness Benefits
High-Deductible Health Plans (HDHPs)
- Permanent relief for telehealth services under HDHP. This will allow HDHPs to provide telehealth services prior to the participants meeting their deductibles, eliminating the concern regarding HSA contribution eligibility. The effect date is retroactive to January 1, 2024, and is now a permanent provision, eliminating employers’ concerns about this important benefit for HDHP plan participants.
- HSA eligibility establishes an exemption to the requirement for HDHP first-dollar coverage restrictions. Effective January 1, 2026, HDHP participants can use their HSAs to cover Direct Primary Care (DPC) arrangements up to $150 monthly for individuals or up to $300 monthly for families. The new tax law clarified that a DPC arrangement is not medical insurance so that HSA contributions can be made. The law also clarified that DPC fees are qualified medical expenses which can be paid or reimbursed by the HSA account. Plan sponsors should evaluate plan amendments whether they should be enacted for the 2026 plan year.
Dependent Care Flexibility Spending Accounts
For plan years starting in 2026, the annual limit for dependent care FSAs rises to $7,500 from $5,000. Plan sponsors should both:
- Evaluate a plan amendment to increase the maximum annual contribution limit for DCFSAs; and
- Be aware that the increased limit may cause more cafeteria plan discrimination refunds, as Highly Compensated Employees (HCEs) may participate at a higher rate than Non-Highly Compensated Employees, which could result in refunds.
Plan sponsors should plan to run preliminary non-discrimination tests early in the year to proactively limit contributions by the HCEs to avoid sticky refunds at year-end.
Educational Loan Assistance
The new tax law permanently allows employers to reimburse student loans in addition to education expenses under a Section 127 plan in addition to tuition and school fees reimbursement. During COVID the IRS temporarily allowed employers to assist employees with student loan repayment, in addition to tuition and fee reimbursement. The new tax law makes this loan reimbursement a permanent feature of the 127 Education Assistance Plan. Employers may contribute up to the annual maximum of $5,250 for each employee. Plan sponsors should plan to review their Section 127 plan and consider making amendments to include this feature permanently.
