Expanded Health and Savings Options
Big Changes for Health Savings Accounts (HSAs)
The OBBB dramatically changes HSA accessibility by
- Making permanent first-dollar telehealth coverage—High Deductible Health Plans (HDHPs) can pay for telehealth services before the deductible without affecting HSA eligibility.
- Automatically treating all Bronze and Catastrophic ACA exchange plans as HSA-compatible—even if they wouldn’t normally qualify as HDHPs.
- Allowing Direct Primary Care (DPC) memberships alongside HSAs—as long as monthly fees are under $150 for individuals or $300 for families, and letting participants pay DPC fees tax-free from their HSAs.
Dependent Care Flexible Spending Account (FSA) Limit Increase
Starting in 2026, the Dependent Care FSA limit increases from $5,000 to $7,500 (or $3,750 for married individuals filing separately). However, the limit is still not indexed for inflation, and the challenging 55% Average Benefits Test remains in place.
Paid Family and Medical Leave Tax Credit Extended
The OBBB permanently establishes the tax credit for employers providing paid family and medical leave, first introduced under the Tax Cuts and Jobs Act (TCJA). Employers can offset costs either through a wage-based credit or an insurance premium credit, provided they have a qualifying leave policy.
Student Loan Repayment Assistance Made Permanent
Employers can continue to offer up to $5,250 per year in tax-free student loan repayment assistance, with the limit indexed for inflation starting in 2026.
Worker and Employer Provisions
No Federal Taxes on Overtime and Tips (Temporary)
From 2025-2028, workers earning $150,000 or less ($300,000 for couples) can deduct
- Up to $25,000 in tips
- Up to $12,500 in overtime pay
Increased Immigration and Customs Enforcement (ICE) Budget and Enforcement
ICE’s budget has tripled to nearly $30 billion allocated over 10 years. Employers, especially in industries like hospitality, agriculture, and construction, should expect increased audits, I-9 inspections, and worksite enforcement.
Tax-Free Bicycle Commuting Reimbursement Permanently Repealed
The OBBB permanently eliminated the $20 per month tax-free bicycle commuter benefit, originally introduced in 2009 and suspended by the 2017 Tax Cuts and Jobs Act (TCJA). This removes an incentive for eco-friendly commuting and could impact workplace sustainability programs.
Tax Cuts and Business Incentives
Business Tax Changes
Incentives for Innovation and Startups
- Immediate R&D Expensing: Businesses can now fully deduct domestic R&D costs in the year incurred or amortize over time.
- Expanded R&D Tax Credits: Includes more activities like software and engineering. Startups can now receive refundable credits, even without profits.
Capital Investment Boost
- 100% Bonus Depreciation: Permanent for assets placed in service after January 19, 2025.
- New Depreciation for Manufacturing Property: 100% write-off for certain production-related real estate.
- Section 179 Expansion: Deduction cap raised to $2.5 million (phase-outs begin at $4 million).
Small Business and Pass-Through Relief
- QBI Deduction Made Permanent: 20% deduction for pass-through income stays in place indefinitely.
- Higher Income Limits: Phase-ins raised to $75,000 (single) and $175,000 (joint).
Financing and Loss Provisions
- Expanded Business Interest Deduction: Businesses can deduct more borrowing costs by excluding depreciation and amortization from ATI calculations.
- Permanent Excess Business Loss Limits: Tightens restrictions on using business losses to offset other income, with stricter calculations starting in 2025.
Opportunity Zones and Small Business Expansion
The Qualified Opportunity Zone (QOZ) program is permanently extended with a new rolling 10-year designation system, allowing governors to refresh QOZ designations every decade. New incentives include a 30% basis boost for rural QOZ investments and stricter reporting requirements for Qualified Opportunity Funds (QOFs).
The Qualified Small Business Stock (QSBS) rules are expanded, reducing the required holding period from 5 to 3 years (with phased benefits) and increasing the tax-free gain cap from $10 million to $15 million. The gross asset threshold for qualifying companies rises to $75 million, broadening access to this tax break.
The New Markets Tax Credit (NMTC) is also made permanent, continuing to incentivize investments in Community Development Entities that fund projects in low-income communities.
COVID-Related ERC Enforcement
The OBBB disallows any new Employee Retention Credit (ERC) claims filed after January 31, 2024, regardless of their prior eligibility. It also extends the IRS statute of limitations to six years for ERC-related audits, increasing the enforcement window for both timely and amended claims.
The OBBB creates a more innovation-friendly tax environment while tightening compliance. Permanent incentives like expanded R&D credits, bonus depreciation, and the QBI deduction support long-term growth, but new limits on losses and stricter enforcement raise the stakes for tax planning.
Businesses should review their strategies now to capitalize on new opportunities and avoid pitfalls.
