The U.S. House of Representatives approved a significant legislative package that includes provisions addressing healthcare, compensation, student loan repayment assistance, and a range of other tax and benefit provisions. The One Big Beautiful Bill Act (H.R.1) is the House’s budget reconciliation bill. The legislation now moves to the Senate, where changes are expected.
The act includes a broad range of tax-related provisions. Among other changes, the legislation would:
- Address eligibility, distribution and contribution rules for health savings accounts (HSAs) and codify rules for individual coverage health reimbursement arrangements (ICHRAs)
- Address eligibility and verification for enrollment and premium tax credits under the Affordable Care Act (ACA)
- Extend the exclusion for employer-provided student loan repayment assistance
- Extend and modify employer tax credits for paid family and medical leave and employer-provided childcare expenses
- Address application of the $1 million limit on the employer’s deduction for compensation paid to certain individuals
- Permanently extend — and, in some cases, modify — expiring provisions of the 2017 Tax Cuts and Jobs Act (individual tax rates, the child tax credit, itemized deductions and other provisions are addressed)
- Establish new, temporary tax deductions for tip income and overtime compensation as well as a new temporary tax deduction for seniors 65 and older
Healthcare provisions
The act includes provisions aimed at enhancing HSAs, codifying ICHRAs, and imposing new eligibility and other requirements on ACA coverage and premium tax credits.
HSAs
- Increased contribution limit for certain taxpayers: The annual limit on HSA contributions would increase by $4,350 for individual coverage and $8,550 for family coverage. The increase would phase out for individuals with income between $75,000 and $100,000 ($150,000 and $200,000 for joint filers). The increase applies only to the taxpayer deduction for HSA contributions; it does not apply to employer HSA contributions.
- Expanded HSA eligibility: The proposal addresses eligibility to make HSA contributions for taxpayers who are treated as having other, disqualifying medical coverage under current law.
- Medicare Part A: Individuals would not lose their HSA eligibility simply because they are entitled to (i.e., enrolled in) Medicare Part A due to their age.
- Direct primary care (DPC): DPC arrangements would not be treated as disqualifying coverage, and HSAs could be used to pay DPC fees of up to $150 per month for individuals and $300 per month for families.
- Onsite clinics: Individuals eligible for discounted medical care through an employer’s onsite clinic would not lose HSA eligibility.
- Spousal health FSA: Individuals would not lose HSA eligibility as a result of eligibility for a spouse’s health flexible spending arrangement (FSA) as long as specified conditions are met.
- Other HSA provisions:
- FSA/HRA conversions: Individuals could convert certain balances in their FSA or health reimbursement arrangement (HRA) to their HSA upon enrolling in HSA-qualifying high-deductible health plan coverage.
- Personal fitness expenses: Amounts paid for qualified sports and personal fitness expenses would be qualified HSA expenses. Distributions would be capped at $500 per year ($1,000 for families).
- Expenses incurred before the account is established: Eligible expenses incurred up to 60 days before the HSA was established would be eligible for reimbursement through the HSA.
- Catch-up contributions: If both spouses are eligible to make catch-up contributions, both spouses could make catch-up contributions to the same HSA.
- Bronze and catastrophic ACA coverage: Bronze and catastrophic plans available on the ACA marketplaces would be considered HSA-eligible coverage.
ICHRAs
The 2019 rule introducing ICHRAs would be codified into law. In addition:
- ICHRAs would be renamed Custom Health Option and Individual Care Expense (CHOICE) arrangements.
- Employees enrolled in a CHOICE arrangement would be permitted to use salary reduction to pay premiums for health coverage purchased on the ACA marketplace.
- Temporary tax credits would be available for small employers (those with up to 50 employees).
- The total ICHRA amount available to the employee would be reported on the employee’s Form W-2.
ACA provisions
- Premium tax credit eligibility: Premium tax credits (PTCs) would be permitted only for U.S. citizens, lawful permanent residents, certain immigrants from Cuba and individuals who are living in the U.S. through a Compact of Free Association. In addition, immigrants with income below 100% of the federal poverty level (FPL) would not be eligible for PTCs during their five-year Medicaid waiting period.
- Advanced PTC (APTC) recapture: Current law limits the amount of excess APTCs individuals must repay if their household income is below 400% FPL. The proposal would remove the cap and require everyone to fully repay excess APTCs.
- Active verification required for PTCs: PTCs and APTCs would not be provided for months during which the individual’s eligibility for enrollment and premium assistance had not been verified. As a result, passive enrollment and re-enrollment would be prohibited.
- No PTCs for coverage purchased during continuous special enrollment period: Enrollees would not qualify for PTCs if they enroll in ACA coverage using the continuous special enrollment period that is available to those with household income below 150% FPL.
Note that the proposal would not extend the enhanced ACA premium tax credits, which are scheduled to sunset on December 31, 2025.
Other benefit-related provisions
- Educational assistance: The exclusion for employer-provided student loan repayment assistance under Internal Revenue Code section 127 would be permanently extended. In addition, the $5,250 limit on qualified educational assistance would index annually for inflation after 2026.
- Employer tax credit for paid family and medical leave: The tax credit for employers that offer paid family and medical leave would be permanently extended. In addition, the credit could be applied to a portion of the employer’s premiums if the employer provides paid family and medical leave through insurance. The credit would be available for paid family leave provided in all states, including states with paid family leave mandates. Eligible employees would be those who have worked for the employer for at least six months (reduced from 12 months under current law).
- Tax credit for employer-provided childcare: The tax credit for employer-provided childcare would increase from $150,000 to $500,000 ($600,000 for small businesses), and the amount of childcare expenses that are eligible for the credit would increase from 25% of expenses under current law to 40% (50% for small employers).
- Exclusions for bicycle commuting and qualified moving expenses: The proposal would repeal the exclusion for qualified bicycle commuting. The exclusion for qualified moving expenses would apply only to individuals who are on active military duty.
Executive compensation
- Section 162(m) deduction: Amounts paid by members of a controlled group to a specified covered employee would be aggregated for purposes of the $1 million deduction limit under section 162(m). Under the provision, if the aggregate amount of applicable remuneration paid by all members of a controlled group with respect to the specified covered employee exceeds $1 million, the deduction for the entire controlled group would be limited to $1 million, and the deduction would be allocated proportionally among the controlled group members. A controlled group would be defined as under the rules used to treat related entities as a single employer for other employee benefit purposes. The provision would apply for taxable years beginning after December 31, 2025.
- Excise tax on tax-exempt employers for compensation over $1 million: Currently, a 21% excise tax is imposed on tax-exempt employers for certain employee remuneration exceeding $1 million. The act would extend the cap to all employees and former employees of the tax-exempt employer.
Other tax provisions
- ABLE accounts: Provisions that increased ABLE account contribution limits and made ABLE contributions eligible for the Saver’s tax credit would be permanently extended. In addition, the act would permanently allow amounts in section 529 plans to be rolled over into ABLE accounts on a tax-free basis.
- Taxes on tips and overtime compensation: New deductions for tip and overtime compensation would be available for individuals who earn less than $160,000 per year (for 2025) and meet other requirements. The deductions would be available for tax years 2025 to 2028.
- Special deduction for seniors: Individuals age 65 or older would receive an extra deduction of $4,000 per eligible individual for tax years 2025 to 2028. The deduction would phase out for individuals with income over $75,000 ($150,000 for joint filers).
- Trump accounts: A new account would be available to help families save for future expenses for certain eligible children. At age 18, amounts in the account would become available for qualified purposes, such as higher education expenses, training programs, small business loans or first-time home purchases. After age 30, amounts could be used for any purpose. Distributions taken for qualified purposes would be taxed as long-term capital gains, while distributions for any other purposes would be taxed as ordinary income. A separate newborn pilot program also would be established.
- Other tax provisions: The legislation would also extend — and in some cases, modify — other tax provisions of the Tax Cuts and Jobs Act, including the individual tax rates, the standard deductions and the child tax credit. It would increase the cap on the deductibility of business interest expense for taxable years after 2024 and before 2030. It would permanently increase the deduction for foreign-derived intangible income to 37.5% and for global intangible low-taxed income to 50%.
- Debt limit: The legislation would increase the federal debt limit.
Next steps
Focus now shifts to the Senate, where lawmakers have expressed concern about the One Big Beautiful Bill Act. Lawmakers will continue to negotiate the provisions of the budget reconciliation legislation as they move through the Senate and toward a final compromise that can be signed into law. Final timing will depend on several factors, including the ongoing negotiations and the legislative calendar.
