One Big Beautiful Bill Act: Impact on Employer Health & Retirement Benefits

The “One Big Beautiful Bill Act” (H.R. 1, 119th Congress) is now law, a sweeping 1,000-plus-page package signed on July 4, 2025. Importantly for benefits plan sponsors and administrators, what is now the law of the land contains new rules affecting health plans, fringe benefits, and potentially retirement offerings.

The legislation essentially extends many 2017 tax cuts and enacts President Trump’s second-term agenda. As the steward of your company’s benefits, it’s important to take note of new rules and regulations that you, your company, and your employees face.  

This guide will coach you through the key changes, timelines, and action steps. Our intent is that, by reading and acting on this comprehensive guide, you’ll understand how to adapt your employer-sponsored healthcare and retirement plans, emerging prepared (and even empowered) to support your employees through these changes. Of course, should you have questions upon or prior to reading it, please do not hesitate to reach out to us.

Executive Summary: What HR Needs to Know

• HSA Expansion: Eligibility widened (including Direct Primary Care users).
• Commuter Benefits: Nonprofits face new taxes on parking/transit benefits starting 2026; bicycle benefit repealed; monthly pre-tax limits preserved. ‍
• Childcare Credits: Employer childcare credit jumps from $150k to $500k; Dependent Care FSA cap rises to $7,500 in 2026. ‍
• Student Loan Repayment: $5,250 annual tax-free employer repayment made permanent and indexed. ‍
• Paid Family Leave: Voluntary paid FMLA credit made permanent; includes state-mandated leave offsets. ‍
• 401(k) Stability: No changes to contribution limits or tax structure; SECURE 2.0 rollout continues unaffected. ‍
• New Trump Accounts: Custodial IRAs for children under 18 start in 2026; up to $5,000/year contribution, plus $1,000 government seed for 2025-2028 births.

Health Plan Changes: HSAs Get a Boost

The Act strongly favors consumer-directed health benefits, such as Health Savings Accounts (HSAs). In fact, benefits attorneys have noted that the law “shows favoritism” toward HSAs,  broadening their scope, increasing utilization, and bolstering employees’ ability to save. For HR teams, this means new opportunities to enhance your company’s healthcare offerings:

• Expanded HSA Eligibility: More employees can contribute to HSAs. The law deems Affordable Care Act Bronze and Catastrophic plans as HSA-qualified high-deductible plans. Even those in Direct Primary Care (DPC) arrangements (monthly membership-based medical care) can now have HSAs, as DPC fees won’t disqualify coverage (assuming the monthly membership fees are $150 or less for singles and $300 or less for families, amounts indexed in future years). These changes expand HSA access to workers and others who were previously ineligible.
  

• New HSA Uses and Flexibility: On-site employer health clinics are no longer a barrier; employees can use certain employer clinics and still contribute to an HSA.  
  

• Telehealth Safe Harbor Permanently Extended: During the pandemic, employers could offer telehealth visits pre-deductible without busting HSA eligibility, a temporary relief that was set to expire. The new law makes that telehealth safe harbor permanent for HDHPs starting in 2025. Translation: your high-deductible plan can cover telemedicine from day one, and employees remain HSA-eligible. This popular benefit can now be confidently baked into plan design going forward.

Why this matters: These HSA enhancements empower employees to better manage healthcare costs, a theme HR can highlight in benefits communications. However, be mindful of equity concerns: research shows HSAs tend to favor higher earners who can afford to contribute more. As the company’s HR guide, you might need to educate and assist lower-paid employees to take advantage of these tools (e.g., through plan seed contributions or financial wellness coaching) so they’re not left behind.

Commuter Benefits: No “Free Ride” for Nonprofits (and Bye-Bye, Bikes)

Commuter benefits see a mix of continuity and change:

• Parking & Transit Benefits Taxation: The Act brings back an unpopular surprise for tax-exempt employers: an excise tax on qualified transportation fringe benefits (such as free parking or transit passes). Specifically, a nonprofit’s unrelated business taxable income will now include amounts paid for employee parking or transit benefits. In plain English, churches, charities, credit unions, and other nonprofits will effectively pay taxes on the parking spots or subway cards they provide employees, a provision reminiscent of a 2017 tax change that had been repealed. Human Resources teams in nonprofit sectors must flag this to their finance teams. You may need to track the annual cost of any commuter perks and budget for the roughly 21% tax hit. Some organizations might even reconsider offering those benefits or switch to taxable stipends.
  

• Bicycle Commuting Reimbursement Eliminated (Permanently): Pre-2018, employers could offer a small tax-free reimbursement (up to $20/month) for bicycle commuters. That benefit was suspended under the 2017 tax law, and H.R. 1 now permanently repeals the bicycle commuting tax exclusion. Starting in 2026, any employer payments for an employee’s biking expenses will be taxable compensation. While relatively few employers offered this perk, it’s important to update any commuter policy language to remove references to tax-free bike benefits. (Employees can still bike to work, of course—they just can’t get a tax-free subsidy for doing so.)
  

• Transit and Parking Benefit Limits: The standard pre-tax limits for transit passes and parking (currently around $300/month each, indexed annually) remain in place and will continue to be inflation-adjusted going forward. The Act even tweaked the formula to ensure an extra year of inflation updates. For most HR admins, this simply means you should adjust your commuter benefit deduction caps each year as usual. The core structure—employees can pay for transit or parking with pre-tax dollars up to the monthly limit—is unchanged and now made permanent beyond 2025.

Bottom line: If you’re a for-profit employer, commuter benefits largely continue “business as usual”—keep offering transit/parking FSAs and inform employees of the yearly limit changes. If you’re a nonprofit employer, prepare for a new tax liability on those benefits in 2026; you’ll need to coordinate with Accounting on compliance or you may need to consider alternatives. And for all employers, note that the niche bike-to-work reimbursement will not be coming back. Adjust any green commuting incentives accordingly.

Family-Friendly Fringe Benefits: Childcare, Student Loans, and More

Beyond healthcare, the One Big Beautiful Bill Act also touches benefits that help employees with family and financial well-being. As HR, you serve as a resource in these areas too:

• Enhanced Childcare Credit for Employers: Supporting employees’ childcare needs just got more enticing for companies. The law permanently increases the Employer-Provided Child Care Credit (IRC §45F), boosting the maximum credit from $150,000 to $500,000 per year, and raising the credit rate from 25% to 40% of qualified childcare expenses. It also creates a higher credit amount for small businesses and indexes these caps for inflation. This means if your company builds an on-site daycare or contracts with a childcare facility for employees, you can recoup up to 40% of those costs (up to $500k) as a tax credit. HR teams advocating for on-site childcare or subsidies can now make an even stronger business case with this richer credit. (Note: This credit is nonrefundable and was underutilized in the past; with higher limits, larger employers may finally find it worthwhile).
  

• Dependent Care FSAs (DCAP) – Higher Limits Ahead: The yearly limit for tax-free dependent care flexible spending accounts will increase for the first time in decades. Effective 2026, employees will be able to set aside up to $7,500 (up from $5,000) in a DCAP if single or married filing jointly (half that if married filing separately). This change aligns with the reality of rising childcare costs. For HR, it means adjusting your FSA plan documents and open enrollment communications for 2026 to reflect the higher cap. Employees with young children or dependent elders should welcome the ability to shield an extra $2,500 of daycare expenses from tax. Start planning mid-2025 to update payroll systems and tests (such as nondiscrimination tests) for the new limit.
  

• Student Loan Repayment Assistance Now a Permanent Benefit: One provision HR professionals have been watching is the ability to pay employees’ student loans up to $5,250/year tax-free under an educational assistance plan. This was set to expire in 2025, but the Act makes it permanent and even indexes the $5,250 limit for inflation from 2026 onward. In short, your company can continue to help pay employees’ student debt indefinitely without triggering income or payroll taxes on those payments. If you’ve already implemented a student loan repayment program, you can now do so with certainty beyond 2025 (and look for that annual inflation bump). If you haven’t, this might be the nudge to consider adding it as a valuable recruiting and retention tool, given its newfound longevity and tax advantage.
  

• Paid Family Leave Credit Extended: The Act permanently extends the federal Employer Credit for Paid Family and Medical Leave (originally from the 2017 tax law). Employers who voluntarily offer paid FMLA leave can continue to claim a tax credit (ranging from 12.5% to 25% of wages paid during leave) if they meet certain requirements. Notably, the new law makes it easier to qualify by allowing state-mandated leave to count (though you only get credit for the portion of leave pay not required by state law). It also lets employers claim a credit for premiums if they insure their paid leave. For HR, this credit may offset some costs of enriching your leave benefits. Check with your tax advisors on structuring your 2026 leave policies to maximize this credit, especially if you operate in states with leave mandates. Supporting employees through life events such as childbirth or illness and getting a federal credit. That’s a win-win to communicate to leadership.

Key Takeaway: The Act doubles down on benefits that invest in employees’ families and futures. Your HR team should evaluate these expanded incentives holistically. For example, could the richer childcare credit and higher DCAP limit enable a more robust childcare assistance program at your workplace? Could permanent student loan assistance be a differentiator in talent acquisition now? These changes invite HR leaders to think strategically about enhancing work-life benefits, now backed by more generous tax breaks.

Retirement Plans: 401(k)s and IRAs…No News is Good News?

You may be wondering how the Act affects 401(k)s, pensions, or IRAs. The short answer: it mostly doesn’t. In a notable turn, H.R. 1 steered clear of any major changes (or cuts) to the employer-sponsored retirement system. Industry advocates heralded this as a relief: “What’s not in the proposal is the story,” said one retirement industry CEO, noting it imposed no new limits or Roth mandates on plan contributions, a “big win for plan sponsors and participants.” In other words, your company’s 401(k) plan can continue business as usual, with contribution limits and tax treatment unchanged. Key points for HR:

• No Reduction in Contribution Limits: Earlier debates floated ideas like lowering 401(k) contribution caps or restricting pre-tax contributions. None of that made it into the final law. Employees can still defer up to the same IRS limits as before (which will continue to be inflation-adjusted annually). The Act does not force high earners into Roth-only contributions either (beyond the existing rule slated for 2026 from a prior law). So, your plan administration and employee deferral elections remain unaffected by this bill.
  

• “Trump Accounts” – A New Savings Option: The one new savings vehicle created is the so-called Trump Account, targeted at children. Starting in 2026, parents (and others) can establish these accounts for minors under 18, which function similarly to custodial IRAs. Up to $5,000 per year can be contributed (indexed), and the government will even deposit $1,000 for every U.S. child born 2025–2028 as a kickstarter. Before you get inundated with questions: these accounts are not part of your 401(k) plan, but HR might get employee inquiries about them. Employers can contribute up to $2,500 to an employee’s Trump Account (or their dependent’s account) tax-free, similar to a 401(k) match. However, doing so would require setting up a plan framework for it. For now, Trump Accounts are an interesting new tool for young family financial wellness, but they operate outside normal retirement plans. Keep an eye out for Treasury guidance on how these will be implemented…and whether employers find creative ways to assist employees with newborns via this mechanism.
  

• Minor Tweaks Around the Edges: The Act’s retirement-related provisions are few. It extends a tax credit for contributions to ABLE accounts (for people with disabilities) and eases some rules around 529 college plans and IRA rollovers. These are niche and won’t require action from most plan administrators. Notably, the much-anticipated SECURE 2.0 provisions (such as higher catch-up limits at age 60, mandatory auto-enrollment, and student-loan matching) are unchanged—those were passed in 2022 and are rolling out on schedule. The new law neither accelerates nor delays those; it simply leaves the retirement landscape stable so HR can continue to implement SECURE 2.0 changes as planned.

In summary: The absence of new retirement plan burdens is a welcome relief for HR and benefits teams. As one analyst put it, preserving the status quo here is “a big win” for the system. You can focus on fine-tuning your existing plans and ensuring compliance with prior reforms, rather than overhauling retirement benefits yet again. And if anything, use this breather to promote the value of your 401(k) plan to employees. There are no new restrictions to dampen its appeal.

Timeline of Key Changes

Many provisions in the Act kick in on specific dates. Here’s a quick timeline for HR to note:

July 4, 2025 (Date of Enactment) – Some provisions became effective immediately upon signing. For example, the overtime and tip tax deductions technically apply to all of 2025 (retroactively), and certain budget changes (such as Medicaid rules) start now. However, most benefits-related changes are forward-looking.

Plan Year 2025 – Telehealth HDHP Safe Harbor extension begins for plan years starting after Dec 31, 2024. In practical terms, your 2025 health plans can cover telemedicine pre-deductible without jeopardizing HSA eligibility. Also, employers can continue offering student loan assistance in 2025 under the now-permanent rule (no expiration to worry about).

January 1, 2026 – This is when many big changes hit: ‍

• New HSA eligibility categories take effect (DPC participants, etc.). ‍
• Trump Accounts can be opened for minors (the Treasury and financial institutions will sort out 2026 account setup details). ‍
• Dependent Care FSA limit rises to $7,500 for tax year 2026. ‍
• Qualified transportation fringe changes apply: no bike exclusion and nonprofit commuter benefits taxable from 2026 onward. ‍
• Paid Family Leave credit changes and the enhanced childcare credit for employers become available for the 2026 tax year.
• Many extended tax cuts (e.g., SALT deduction cap increase, senior $6k deduction) also begin in 2026, but those are more on the individual tax side.
  

2027 and Beyond – Annual inflation adjustments will start affecting the new provisions: e.g., student loan $5,250 exclusion indexed from 2026 onward, childcare credit $500k cap indexed, Trump Account $5k limit indexed, etc. The expanded SALT cap is set to revert after 2029 absent further law. The overtime and tip deductions phase out end of 2028. Keep an eye on 2029 as some temporary perks sunset.

For HR, the 2025-2026 window is critical for implementation. You have a lead time of approximately one year or so for the HSA and fringe benefit changes. Use 2025 to prepare for 2026 open enrollments and payroll updates.

Next Steps for HR Teams

Faced with this mountain of changes, HR professionals have a chance to shine as the guiding force for their organizations. Here are concrete steps to take:

1. Educate and Communicate: Break down these changes for your team and employees. Consider hosting a “What the New Law Means for Our Benefits” session or memo. Explain new HSA opportunities (e.g., DPC, new eligible plans) to employees so they can plan contributions for 2026. Highlight the permanent nature of student loan assistance and encourage uptake. Clear, proactive communication will position you as the trusted guide through the change.
   

2. Coordinate with Payroll and Providers: Many provisions require admin tweaks. Engage your payroll provider about the new Form W-2 reporting requirements for overtime and tips (they’ll need to report 2025 overtime pay separately for employees to claim the deduction). Talk to your FSA vendors about updating contribution limits and plan documents, if applicable. Early coordination will ensure systems are ready when the changes hit.
   

3. Review and Update Benefit Policies: Conduct a thorough review of your benefit plan documents, SPDs, and policies:
   

• Update Dependent Care FSA plan documents for the $7,500 cap in 2026.
• If you plan to contribute to Trump Accounts, draft the necessary plan documents and communication materials.
• Check your 401(k) plan materials. While no changes are required, this is a good time to remind employees of the unchanged generous tax benefits of their retirement plan (since the law left it untouched, reaffirm that stability as a positive).
  

4. Advise Leadership on Strategic Opportunities: Use the new incentives to enhance your benefits strategy. For example, quantify the impact of the childcare credit: “We could recover 40% of costs if we invest in a backup childcare program, thanks to the new credit”. By translating these changes into business value, you help the C-suite make informed decisions that benefit employees. This cements HR’s role as not just compliance manager but a strategic partner guiding the company’s total rewards philosophy.
   

5. Stay Informed and Agile: The Act delegates details to federal agencies in many areas. Guidance will be forthcoming (the IRS, DOL, and HHS will be busy!). Keep an eye out for clarifications on HSA rule implementation, the mechanics of Trump Accounts, and any state law interactions (e.g., how the overtime deduction might affect state withholding). Subscribe to updates from trusted sources—legal counsel, SHRM, industry groups—so you can adapt quickly. As new questions arise (“How do we claim XYZ credit?” or “How exactly do we administer this benefit?”), don’t hesitate to seek our expertise. Part of being the resource that you are is knowing when to call in specialized help.

By taking these steps, you’ll navigate the One Big Beautiful Bill Act’s changes with confidence. Remember, you are the hero to your workforce; and with this knowledge, you’re equipped to lead them safely through the evolving benefits landscape. Change can be complex, but with preparation and the right guidance, it’s also an opportunity to improve the lives of your employees. Your proactive leadership in HR will turn legislative upheaval into meaningful progress for your people.

As always, if there is anything we can do to make your life easier or your benefits plans and communications efforts more effective, we are always here to help.

Sources:

• Congress.gov, H.R.1 – One Big Beautiful Bill Act (119th Congress) – Summary & Text
• Jackson Lewis, “Is the One Big Beautiful Bill Act an Employee Benefits Crystal Ball?” (June 17, 2025)
• Paylocity, HR & Tax Alert: One Big Beautiful Bill Act (July 2025)
• American Retirement Association (ASPPA), Analysis of Final H.R.1 (July 3, 2025)
• Brookings Institution, “The Hidden Costs of Expanding HSAs in OBBBA” (June 5, 2025)
• America’s Credit Unions, Compliance Blog: H.R.1 Implications (June 2025).