On July 4, President Donald Trump signed the One Big Beautiful Act (the “Act”) into law, which includes several provisions impacting employee benefits and compensation that insurance brokers and plan sponsors need to know.

Health Savings Accounts

A Health Savings Account (HSA) is an account or trust funded by employers or individuals and can be used to reimburse certain medical expenses. An HSA is especially appealing because it is usually exempt from taxation. To contribute to an HSA, an employee must be covered by a high-deductible health plan (HDHP). In general, the Act expanded HSA eligibility under several HDHP plans.

Safe Harbor Codified for Telehealth Services under High-Deductible Health Plans

Previously, an HDHP covered only some preventative services and limited types of telehealth services before the participant’s applicable deductible was met. The Act amended the HSA rules to provide that a health plan can qualify as an HDHP even if it does not have a deductible for telehealth and other remote care services. This protection also retroactively applies to plans beginning after Dec. 31, 2024.

In effect, this is the only change under the Act that may require immediate action from plan sponsors, including reimbursing HDHP participants for the fair market value of telehealth services charged since Jan.1, 2025.

Bronze and Catastrophic Plans Now Qualify for HSAs

The ACA exchange offers five categories of insurance, including bronze, silver, gold, platinum, and catastrophic plans. A bronze level plan requires a high deductible and the individual to pay 40 percent of costs of covered services. A catastrophic health plan has low monthly premiums, very high deductibles, and covers serious illnesses and injuries only.

Both the bronze level and catastrophic coverage plans have high deductibles, and the Act now qualifies them as HDHPs, meaning participants of those plans can obtain an HSA.

Direct Primary Care Service Arrangements Now Qualify for HSAs

A direct primary care service arrangement (DPCSA) is an arrangement where an individual has medical care consisting of primary care services delivered by primary care practitioners for a fixed periodic fee. The Act provides that the fixed periodic fee under this plan is an HSA-qualified medical expense.

Flexible Spending Account (FSA)

Dependent Care FSA Limit Increase and Enhancement of Employer-Provided Child Care Tax Credit

Effective Jan. 1, 2026, the limit on dependent care FSA contributions will increase to $7,500 (or $3,750 for married couples filing separately). Also, the maximum tax credit employers may take for qualified childcare will increase to $500,000 or $600,000 for eligible small businesses.

Fringe Benefits

Bicycle Commuting Reimbursements now treated as Gross Income and Wages

Bicycle commuting expenses were previously excluded from gross income and wages. Previously reformed to suspend the exclusion after Dec. 31, 2017 and before Jan 1, 2026, the exclusion is now permanent.

Disallowance of Employee Moving Expenses Deduction

Individuals were previously allowed a deduction for moving expenses paid or incurred in connection with starting a new job. This was similarly suspended for moving expenses incurred in tax years 2018 through 2025. Now, this disallowance of the deduction is permanent.

In effect, if an employer continues to offer these benefits, they may do so on a taxable basis.

Other Benefits

Employer Payments of Student Loans

When an employer provides educational assistance to an employee, the Act excludes the first $5,250 from the employee’s gross income. Educational assistance includes an employer’s payment of principal or interest on a qualified education loan incurred by the employee for their education. Initially, this exclusion was set to expire on Jan. 1, 2026, but now, the exclusion is permanent. The current limit on the annual exclusion will adjust for inflation after 2026.

Employer Credit for Paid Leave and Medical Leave

Previously, employers were permitted a business tax credit based on wages paid to qualifying employees on family and medical leave through Jan. 1, 2026. Now, the employer credit is permanent.

Trump Accounts

The Act established Trump Accounts, which operate as tax-favored accounts for children under the age of 18. The contribution limit is $5,000 per year, and the accounts will grow on a tax-deferred basis. Employers can make up to $2,500 in nontaxable contributions per employee. Children cannot receive distributions from their Trump Account until they turn 18 years old.

Executive Compensation

Aggregated Rule on Excessive Employee Remuneration

Publicly held corporations are generally limited to deductions of $1 million per year in compensation paid to each “covered employee,” including any employee who is the principal executive officer (PEO) or principal financial officer (PFO) at any time during the taxable year.

For tax years beginning after Dec. 31, 2025, the Act adds an aggregation rule when applying the $1 million deduction limitation to “specified covered employees,” which now includes:

• PEO,
• PFO,
• the three highest compensated employees other than PEO and PFO, and
• any employee who was a “covered employee” for preceding years beginning after Dec. 31, 2016.

After Dec. 31, 2026, the aggregation rule will extend to the five highest compensated employees, as opposed to three.

Expanded Tax on Excess Compensation for Tax-Exempt Organizations

Applicable tax-exempt organizations (ATEOs) are required to pay an excise tax on compensation over $1 million and on excess parachute payments to “covered employees.” For tax years beginning after December 31, “covered employees” are expanded beyond the ATEO’s five highest compensated employees to include all current and former employees of the ATEO with service during the taxable year beginning after Dec. 31, 2016 that were paid compensation in excess of $1 million for the taxable year.

Guidance for Employers and Plan Sponsors following the Act

Regarding employee benefits and compensation, the only provision under the Act with immediate potential consequences is the retroactive treatment of how telehealth services were charged under HDHPs since January 1. Otherwise, most other provisions take effect beginning in 2026. Employers and plan sponsors should confirm their plan documents and policies have accurately incorporated these changes.

Bell Nunnally’s ERISA Compliance team is ready to provide assistance and navigate employers and plan sponsors through these new provisions and other employee benefit and compensation matters.