May 29, 2025

House Tax & Spending Bill: Noteworthy Employee Benefit Changes

Employee Benefits

13 min read

Erica Honig, J.D., Senior Compliance Director, Employee Benefits

House Tax & Spending Bill: Noteworthy Employee Benefit Changes

On May 22, 2025, the United States House of Representatives narrowly passed sweeping tax and spending legislation, titled the “One Big Beautiful Bill Act,” to implement President Trump’s policy goals within the budget reconciliation process. This legislation permanently extends the individual tax cuts included in the 2017 Tax Cuts and Jobs Act (TCJA), among other tax and spending-related provisions.

Of note for employer group health plan sponsors, it does not change the current tax exclusion treatment of employer-sponsored health insurance coverage^[1]. Additionally, this legislation does not extend the telehealth relief for Health Savings Account (HSA)-compatible High Deductible Health Plans (HDHPs) that initially became effective in 2020 (as a result of COVID-related legislation) but expired on December 31, 2024.^[2]

The table below captures the noteworthy changes included in this legislation (tucked into the “Investing In Health Of American Families And Workers” section) impacting employee benefit plans and programs for employers to be aware of at this stage. A significant portion of the changes detailed below provide more flexibility to certain rules around Health Savings Accounts (HSAs).

Moreover, certain more controversial provisions in this legislation related to Medicaid funding cuts and efforts to decrease enrollment in Affordable Care Act (ACA) Marketplace Exchange plans could potentially impact the employer-sponsored health insurance coverage market by effectively driving up the number of employees enrolling in the employers’ plans as a result.

Employers should note that while this legislation was just passed by the U.S. House of Representatives, it still needs to be deliberated and passed by the United States Senate, and then ultimately signed by the President into law. As such, it is fairly early in the legislative process and changes to any provisions in this legislation, including the employee benefits-related items highlighted below, are possible.

NOTE: Scroll within the table to view all provisions discussed:

Employee Benefits Provision	Current Law/Rule	One Big Beautiful Bill Act Change	Change Effective Date
Treatment of health reimbursement arrangements integrated with individual market coverage	Employees with a health reimbursement arrangement (HRA) offered by their employer can use this tax-advantaged arrangement on certain medical expenses. Final regulations from 2019 expanded the use of HRAs, allowing employers to offer “Individual Coverage HRAs” (ICHRAs) that, in addition to existing medical expenses, can also be used to purchase qualified health insurance on the individual market without violating group health plan requirements. Currently, employers are not allowed to offer both an ICHRA and a traditional group health plan to the same class of employees (as prescribed in the 2019 ICHRA final regulations).	Codifies the final 2019 regulations permitting Individual Coverage HRAs and renames them Custom Health Option and Individual Care Expense (CHOICE) arrangements. A new exception in this provision with respect to the general rule prohibiting employers from offering employees both a traditional group health plan and an ICHRA would permit small employers* to provide a choice to their employees to either enroll in a traditional group health plan or a CHOICE plan (previously known as an ICHRA). *Small employers are those in the “small group market” of 50-100 employees, depending on the applicable state.	Plan years beginning after December 31, 2025
Participants in CHOICE arrangement eligible for purchase of Exchange insurance under cafeteria plan	Employers cannot permit employees to make salary reduction contributions to a Section 125 cafeteria plan to purchase an ACA Exchange Marketplace plan, although they can do so for individual coverage offered outside the Marketplace.	Permits employees enrolled in a CHOICE arrangement to use a salary reduction to pay for health plan premiums purchased through an Exchange Marketplace, providing parity of tax treatment for Exchange Marketplace plans and those individual plans outside of the Marketplace.	Taxable years beginning after December 31, 2025
Employer credit for CHOICE arrangement	Not applicable.	Provides a two-year tax credit for small businesses with fewer than 50 employees offering coverage through CHOICE arrangements for the first time. Such coverage must be considered minimum essential coverage under ACA standards. The general business credit amount is $100 per employee, per month in the first year and $50 per employee, per month in the second year.	Taxable years beginning after December 31, 2025
Individuals entitled to Part A of Medicare by reason of age allowed to contribute to health savings accounts	Individuals entitled to Medicare Part A are not allowed to contribute to a health savings account (HSA) even if they are still enrolled in a private high-deductible health plan (HDHP).	Permits individuals enrolled in an HDHP, including working seniors, who are eligible for Medicare Part A to continue contributing to an HSA.	Months beginning after December 31, 2025
Treatment of direct primary care service arrangements	The Internal Revenue Services (IRS) views certain direct primary care (DPC) arrangements* as a separate and additional form of health insurance coverage. As such, individuals simultaneously cannot contribute to an HSA (as an enrollee of a HDHP) and pay DPC arrangement fees. * A DPC arrangement is where an individual generally pays a fixed fee for access to a primary care doctor alongside certain primary care services	Permits individuals with HDHPs to enroll in DPC arrangements and maintain their HSA eligibility. It also allows HSA funds to be used to pay for DPC services. HSA distributions for DPC arrangement services cannot exceed $150 per month for individuals or $300 per month for family arrangements, adjusted annually for inflation. Notably, DPC arrangements under this new provision are prohibited from providing the following services: Procedures requiring the use of general anesthesia Prescription drugs other than vaccines Laboratory services not typically administered in an ambulatory primary care setting.	Months beginning after December 31, 2025
Allowance of bronze and catastrophic plans in connection with health savings accounts	Certain bronze and all catastrophic health insurance plans offered through the Exchange Marketplace have maximum out-of-pocket costs that exceed IRS-defined maximum out-of-pocket limits for HDHPs, resulting in disqualifying HSA compatibility.	Permits all bronze and catastrophic health insurance plans offered through the Exchange to be eligible plans for the purpose of making HSA contributions. This provision may be of interest to small employers participating in the Exchange in that it would allow employees of those employers to contribute to an HSA.	Months beginning after December 31, 2025
On-site employee clinics	Since the IRS currently views certain discounted health services received at health facilities that are owned or leased by their employer (or their spouse’s employer), including an employer on-site clinic, as “significant medical care,”^[3] employees cannot contribute to an HSA while also utilizing these employer on-site clinic services.	Permits individuals who utilize discounted health care services* at health facilities that are owned or leased by their employer (or their spouse’s employer), including an employer on-site clinic, to contribute to an HSA. Includes the following items and services: Physical examination* Immunizations Non-prescribed drug Treatment for injuries occurring in the course of employment Preventive care for chronic conditions Drug testing Hearing or vision screenings and related services.	Months in taxable years beginning after December 31, 2025
Certain amounts paid for physical activity, fitness, and exercise treated as amounts paid for medical care	Sports and fitness expenses, such as fitness facility membership fees, are not currently treated as HSA qualified medical expenses.	Permits individuals to use their HSA for physical fitness memberships and instructional physical activity up to $500 per year for an individual and $1,000 per year for a family with up to one-twelfth of such expenses allowed per month. Notable *exclusions* in this provision include: private clubs owned and operated by its members golf, hunting, sailing, or riding facilities exercise-related videos, book or similar materials remote or virtual instruction in a physical exercise or physical activity, unless such instruction is live one-on-one personal training membership at a fitness facility that does not last more than one day participation or instruction in physical exercise/activity that does not continue for more than one occasion	Taxable years beginning after December 31, 2025
Allow both spouses to make catch-up contributions to the same health savings account	Currently, when both spouses are HSA-eligible and age 55 or older, they must open separate HSA accounts to make their respective “catch-up” contributions (an extra $1,000 annually).^[4]	Permits both spouses to deposit their catch-up contributions into one account.	Taxable years beginning after December 31, 2025
FSA and HRA terminations or conversions to fund HSAs	Individuals cannot currently transfer flexible spending arrangement (FSA) or health reimbursement arrangement (HRA) balances into an HSA.	Permits employees, at the employer’s discretion, to convert FSA and HRA balances into an HSA contribution upon enrolling in an HSA-compatible HDHP. The conversion amount is capped at the annual FSA contribution limit ($3,300 in 2025). Employee cannot have been enrolled in an HSA-compatible HDHP for a 4-year period prior to the conversion.	Distributions made after December 31, 2025
Special rule for certain medical expenses incurred before establishment of health savings account	HSA funds can currently only be used for the purchase or reimbursement of a qualified medical expense (QME) after the HSA is established.	Permits medical services incurred within 60 days before the establishment of an HSA to be eligible QMEs.	Coverage beginning after December 31, 2025
Contributions permitted if spouse has health flexible spending arrangement	Currently, individuals are not eligible for an HSA if their spouse is enrolled in an FSA.^[5]	Permits individuals to be eligible for an HSA even if the individual’s spouse is enrolled in an FSA.	Plan years beginning after December 31, 2025
Increase in health savings account contribution limitation for certain individuals	Currently, statutory HSA contribution limits are indexed every year for inflation. See Risk Strategies article here for 2025 and 2026 HSA contributions limits.	Permits individuals who make less than $75,000 annually (or $150,000 in the case of families) to contribute an additional $4,300 (or $8,550 in the case of families) each year to their HSA, indexed for inflation. These additional amounts are phased out for individuals making $100,000 annually (or $200,000 for families).	Taxable years beginning after December 31, 2025
Qualified Bicycle Commuting Reimbursement Exclusion	The 2017 TCJA suspended the exclusion of qualified bicycle commuting reimbursement ($20 per month) from an employee's income for tax years beginning after 2017 and before 2026. Employees who receive payment for qualified bicycle commuting expenses are not eligible for the tax exclusion during this time period.	Permanently eliminates the qualified bicycle commuting reimbursement exclusion.	Taxable years beginning after December 31, 2025
Paid family and medical leave credit	The 2017 TCJA created the paid family and medical leave (PFML) tax credit, providing businesses with a nonrefundable tax credit ranging from 12.5 to 25% of the wages paid to employees on leave. Employers claiming the credit are required to: Provide at least two weeks of PFML to all eligible employees annually, Have a written policy in effect, and, Pay at least 50% of normal wages to employees during their leave. Employers can claim up to 12 weeks of paid leave benefits. An eligible employee is a full- or part-time employee that has: worked for the employer for at least one year and earns no more than 60% of the “highly compensated employee” limit ($96,000 in 2025). This PFML tax credit is set to expire after December 31, 2025.	Permanently extends the PFML tax credit with three enhancements outlined below: Expands the credit allowing employers to claim the credit for a portion of paid family leave (PFL)^[6] insurance premiums, Makes the credit available in all states, and Lowers the minimum employee work requirement from one year to six months (at the employer’s election).	Taxable years beginning after December 31, 2025
Enhancement of employer-provided child care credit	The employer-provided child care credit, under Internal Revenue Code (IRC) Section 45F, provides businesses a nonrefundable tax credit of up to $150,000 per year on up to 25% of qualified child care expenses provided to employees.^[7]	Permanently increases the employer-provided child care credit, creates a separate credit amount for qualified small businesses, and indexes the maximum credit amounts for inflation. Specifically, this provision increases the maximum credit from $150,000 to $500,000 and the percentage of qualified child care expenses covered from 25% to 40%^[8]. Additionally, section 45F is further strengthened for small businesses by increasing the maximum credit to $600,000 and the percent of qualified child care expenses covered to 50%^[9]. Additionally, this new provision permits small businesses to pool their resources to provide child care to their employees and for businesses to use a third-party intermediary to facilitate child care services on their behalf.	Amounts paid or incurred after December 31, 2025.
Exclusion for certain employer payments of student loans under educational assistance programs made permanent and adjusted for inflation	Currently, the first $5,250 of employer-provided educational assistance is excluded from an employee’s gross income. Employer-provided education assistance includes the payment, by an employer, of an employee’s educational expenses (including, but not limited to, tuition, fees, and similar payments, books, supplies, and equipment). This also includes an employee’s qualified student loan payments in the case of payments made before January 1, 2026. Click here and here for previous Risk Strategies articles detailing the COVID-related student loan assistance tax savings through 2025.	Permanently extends the exclusion from gross income for qualified education loan payments under IRC Section 127(c)(1)(B); also indexes for inflation the maximum exclusion from gross income for educational assistance programs under IRC Section 127(a)(2).	Payments made after December 31, 2025

Risk Strategies is closely monitoring developments related to this legislation and will provide updates when available. In the meantime, contact your Risk Strategies account team with any questions or contact us directly here.

[1] Click here for a Risk Strategies article with more details on this tax policy topic.

[2] See article above for more information on the HSA telehealth relief topic.

[3] See IRS Notice 2008-59, Q/A 10

[4] See IRS Notice 2008-59, Q/A 22

[5] See Revenue Ruling 2004-45

[6] PFL insurance is a newer offering that is primarily utilized by smaller businesses to offer paid leave benefits to their employees and is available in a growing number of states.

[7] Currently, an employer must spend at least $600,000 on child care related expenses to receive the full credit, and the credit has not changed since its creation in 1986.

[8] With this new provision, a business must spend at least $1.25 million on child care related expenses to receive the full credit.

[9] With this new provision, a small business must spend at least $1.2 million on child care related expenses to receive the full credit. An eligible small business is one that meets the gross receipts test under IRC Section 448(c) for a five-year period.

The contents of this article are for general informational purposes only and Risk Strategies Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.

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