On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, introducing sweeping changes to the U.S. tax code. Among its many provisions, OBBBA significantly impacts employee benefits, offering new incentives and expanding existing ones for both employers and employees.
Overview of the One Big Beautiful Bill Act (OBBBA)
OBBBA is a comprehensive tax reform package aimed at stimulating economic growth and supporting working families. It modifies several key areas of the tax code, with a strong emphasis on enhancing employee benefits and employer incentives.
Key Employee Benefit Changes Under OBBBA
Enhanced Employer-Provided Child Care Credit
- Employers can now claim a 40% tax credit for qualified childcare expenses incurred after 2025, up to $500,000 annually.
- Small businesses benefit even more, with a 50% credit and a higher cap of $600,000.
- These limits will be indexed for inflation starting in 2026.
- Additionally, small businesses may pool resources to jointly operate childcare facilities.
Increased Limits for Dependent Care Assistance Benefits
OBBBA raises the annual exclusion for dependent care assistance accounts to:
- $7,500 for individuals
- $3,750 for married individuals filing separately
This change applies to tax years beginning after December 31, 2025, allowing employees and self-employed individuals to set aside more pre-tax income for child and dependent care services.
Permanent Exclusion for Education Assistance Benefits
Previously set to expire after 2025, the exclusion for employer-paid student loan assistance is now permanent. Employees can continue to exclude up to $5,250 annually from gross income for educational assistance, including:
- Tuition and fees
- Books and supplies
- Qualified student loan payments
Expanded Employer Credit for Paid Family and Medical Leave
The employer credit for providing paid leave under the Family and Medical Leave Act (FMLA) is now permanent. Starting in 2026, employers may also claim a credit for a percentage of premiums paid for insurance policies that offer family and medical leave:
- Credit ranges from 12.5% to 25% of premiums paid
Updated Rules for Employer-Provided Meals
OBBBA retains the elimination of business deductions for employer-provided meals that are excludable from employee income. However, it expands exceptions to include:
- Fishing vessels
- Fish processing vessels
- Fish tender vessels
Employers may still deduct the full cost of food and beverages sold to customers, including employees.
Reinstated Bicycle Commuting Reimbursement Exclusion
OBBBA permanently repeals the suspension of the bicycle commuting reimbursement exclusion. Starting in 2026, employees can once again exclude qualified reimbursements from income.
What Employers Should Do Next
Employers should review their current benefit offerings and consider how OBBBA employee benefits provisions can enhance their compensation packages. Key actions include:
- Evaluating eligibility for new or expanded tax credits
- Updating benefit plans to reflect increased limits and permanent exclusions
- Considering pooled childcare solutions for small businesses
- Consulting with tax professionals to maximize deductions and credits
As the landscape of employee benefits evolves under OBBBA, employers have a unique opportunity to enhance their offerings while leveraging new tax advantages. From expanded childcare credits to permanent education assistance and paid leave incentives, these changes reflect a broader commitment to supporting the modern workforce. Staying informed and proactive will be key to maximizing the impact of these provisions—for your business and your employees alike. Contact us with any questions you have about the OBBBA or employee benefits. You can also download a chart with the key OBBBA provisions here.