What the New Tax Law Means for Employee Benefits
Key takeaways
The legislation known as the One Big Beautiful Bill Act makes some benefits more flexible for employees or more attractive to employers.
But the legislation makes it more difficult to receive subsidies via the Affordable Care Act.
Your financial advisor can help you reassess your approach to your benefits in light of these provisions.
If you’re like most Americans, your compensation package from work includes both your salary and your benefits. If that’s the case for you, it’s important to understand how the bill referred to as the One Big Beautiful Bill Act (OBBBA) may affect the benefits you receive.
Signed into law on July 4, 2025, OBBBA in many cases extends provisions of the Tax Cuts and Jobs Act (TCJA) that were set to expire at the end of 2025, making them “permanent.”
When we talk about provisions of the OBBBA being made “permanent,” it really just means they don’t expire. But it’s important to keep in mind they can be changed by Congress in the future.
Here’s a look at several ways your employee benefits may be changing.
What’s expanding?
The OBBBA includes some permanent extensions of provisions from TCJA, as well as new provisions that give you greater flexibility and reward your employer for offering certain benefits.
Access to telehealth and health savings accounts in high-deductible plans made permanent
The legislation permanently extends the telehealth safe harbor for high-deductible health plans (HDHPs). This allows your HDHP to provide telehealth care coverage with no deductible without making you ineligible for a health savings account (HSA). Unlike many other changes in OBBBA, this one is retroactive. As a result, if you currently have an HDHP, you can take advantage of this provision now.
Dependent care FSA contribution limits increase
Beginning in 2026, the annual contribution limit for a dependent care flexible spending account (DCFSA) increases by 50 percent, going from $5,000 per household to $7,500. Annual contributions are still limited by the income of the lower-earning spouse. That means that you and your spouse would each have to earn at least $7,500 per year to contribute up to the full statutory limit. There are some exceptions made for nonworking spouses who are full-time students or incapable of self-care.
If you’re eligible for a DCFSA or already using one to pay for care for your dependents, you may want to determine whether you should take advantage of this increase as you prepare for open enrollment.
Take the next step.
Your advisor will answer your questions and help you uncover opportunities and blind spots that might otherwise go overlooked.
Let’s talkEmployer contributions to student loan repayment made permanent
OBBBA makes permanent employers’ ability to contribute to the repayment of an employee’s student loan, tax-free for the employee, through a qualified education assistance program (QEAP). The annual contribution limit will rise with inflation beginning in 2026.
If you’re paying down student loan debt, you’ll want to be aware of whether your benefits include educational assistance. If they don’t, you might suggest your employer look into it. Besides attracting top talent, a QEAP can help businesses reduce their tax burden, as it’s a type of compensation that doesn’t incur payroll taxes.
New child-focused retirement accounts allow employer contributions
Trump Accounts are a new kind of tax-advantaged retirement account for children similar to traditional (non-Roth) individual retirement accounts (IRAs). The key differences are that your child does not need to earn income for you to make contributions, there are fewer investment options to choose from, and no withdrawals can be made until the calendar year in which your child reaches age 18.
Loved ones can contribute up to $5,000 per year to a child’s Trump Account. Your employer can also contribute, and up to $2,500 per year of the contribution can be excluded from your taxable income. Note that any employer contribution counts toward the $5,000 annual contribution limit, which will be adjusted for inflation starting in 2028.
You have time to decide whether they’re right for you. The rules governing these accounts are still being developed, and you won’t be able to start making contributions to them until July 4, 2026.
Paid family leave employer tax credit expanded and made permanent
Beginning in 2018, employers who offer at least two weeks of paid family and medical leave (PFML) annually could receive a tax credit worth at least 12.5 percent of an employee’s wages while on leave. OBBBA makes that tax credit permanent and expands it. Employers can now get an additional tax credit for any insurance premiums paid during the leave period, and it now applies to all employers, including those in states with mandatory PFML.
So, if your employer introduced a PFML policy because of the tax credit, this extension incentivizes them to continue it. If your employer doesn’t currently offer at least two weeks of paid leave to welcome a new child, recover from an illness or care for a loved one, the indefinite extension of this tax credit may make a PFML policy more attractive.
What’s shrinking or disappearing?
There are also provisions in the legislation that eliminate certain tax deductions and impact Affordable Care Act (ACA) health plans.
Want more? Get financial tips, tools, and more with our monthly newsletter.
No more tax-free reimbursements for bike commuting and moving
Prior to the TCJA, employees didn’t pay taxes on travel reimbursements for bicycle commuting or most expenses associated with relocating for work. TCJA temporarily suspended both tax advantages, and OBBBA made those suspensions permanent. As a result, you will continue to have to pay tax on reimbursements for both types of expenses.
Less access to ACA health plans and subsidies
OBBBA makes plans purchased on the ACA marketplace more difficult to access. Here’s how:
- It significantly shortens the open enrollment period beginning in fall 2026.
- It effectively ends auto-renewal by requiring ACA plan members receiving subsidies to reverify their eligibility annually.
- It requires greater proof of income and citizenship to qualify for subsidies.
- It makes recently arrived low-income immigrants ineligible to receive subsidies.
What’s more, people with subsidized ACA plans who fail to manually update their eligibility information on time will face significantly higher premiums.
As a reminder, ACA open enrollment will run from November 1, 2025, to January 15, 2026. If you sign up before December 15, your coverage will begin January 1. If you sign up after that, coverage will begin February 1.
Changes to your benefits can affect your finances
Whether and to what degree these benefit changes may impact your larger financial picture can be difficult to determine. But that’s where your Northwestern Mutual advisor can help. Together, you explore how these changes may impact your long-term financial goals and adjust your plan as needed.
This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.
