By Stephanie J. Lowe and Reece Martin
The One Big Beautiful Bill Act, which was signed into law on July 4, 2025, makes a number of changes to employee benefits. One of the big changes is that the Act increases the tax-free contribution limit for dependent care flexible spending accounts (also known as dependent care assistance plans or “DCAPs”) from $5,000 to $7,500 (and from $2,500 to $3,750 for taxpayers who are married filing separately). The Act amends the Internal Revenue Code to permit a taxpayer to exclude up to $7,500 from gross income for dependent care expenses. Prior to the One Big Beautiful Bill Act, the DCAP contribution limit had not changed from $5,000 since the date it was established in 1986, except for the temporary increase to the limit during COVID-19 under the American Rescue Plan Act of 2021. The increased contribution limit of $7,500 will go into effect beginning with tax year 2026.
While $7,500 is the new limit set by the Internal Revenue Code, employers should also review the limits set by their own Section 125 cafeteria plan documents. Some cafeteria plan documents may set a lower limit, or may need to be revised if the employer would like to allow employees to make salary reduction contributions up to $7,500.
Moving Expenses Permanently Remain Taxable.
The One Big Beautiful Bill Act permanently eliminates the moving expense deduction and tax-free moving expense reimbursements. The elimination was originally passed in 2018 and was scheduled to last for an eight-year period until 2026. The Act makes the elimination permanent beyond 2026. As a result, when an employee relocates and moves for a job and their employer pays for or reimburses an employee’s moving expenses, the employee will not be able to exclude those expenses from their gross income. There remain specific exclusions and deductions for certain members of the Armed Forces and members of the intelligence community who are not also in the Armed Forces.
Employer Tax-Free Repayments Of Employee Student Loans Continues Permanently.
The One Big Beautiful Bill Act permanently extends the time an employer can pay for an employee’s qualified education loans through a Section 127 plan. Section 127 of the Internal Revenue Code (Section 127) allows employers to provide up to $5,250 per year in educational assistance to an employee, which may be excluded from gross income if it is provided pursuant to an educational assistance program (EAP) that meets certain requirements. In 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) added a new, temporary provision that allowed employers the option to repay up to $5,250 of an employee’s qualified education loan per year through a Section 127 plan. This temporary provision was set to expire January 1, 2026, but the One Big Beautiful Bill Act extends it permanently. As a result, employees may continue to exclude employer payments for employee’s qualified educational loans up to the $5,250 annual limit beyond January 1, 2026.
To be a qualified education loan, the loan: (1) must be a loan for education at an eligible educational institution, including colleges, universities, vocational schools, or other postsecondary educational institutions; (2) must have been incurred by the employee for the education of the employee (not for the education of a family member, such as a spouse or dependent); (3) must have been paid or incurred within a reasonable period of time before or after the employee took out the loan, although qualified education loans may be incurred by the employee in prior calendar years and prior to employment; and (4) must have been for education provided during an academic period for an eligible student.
Supreme Court Confirms Validity Of Preventive Service Mandate Under ACA.
In Kennedy v. Braidwood Mgmt., the U.S. Supreme Court upheld the authority of the United States Preventive Services Task Force (Task Force) to recommend preventive services that group health plans and insurers must cover without cost sharing.
Under the Affordable Care Act (ACA), group health plans and insurers must cover certain preventative services without cost sharing, including the evidence-based items or services recommended by the Task Force that have an “A” or “B” rating. In 2022, six individuals and two businesses (together, “Braidwood”) filed a lawsuit against the federal government in the Northern District of Texas challenging the legality of the ACA’s preventative care mandates by claiming the mandates violated their religious beliefs by making them “complicit in facilitating homosexual behavior, drug use, and sexual activity outside of marriage between one man and one woman.”
The district court held that the Task Force’s structure violated the Appointments Clause of the U.S. Constitution because its members were not appointed by the Presidential nomination with Senate confirmation. The district court invalidated all agency actions taken on or after March 10, 2010, and imposed a nationwide injunction barring enforcement of Task Force based coverage requirements. The government appealed.
On appeal, the Fifth Circuit affirmed the constitutional defect in Task Force member appointment, but reversed the district court’s decision to vacate agency actions and narrowed the nation-wide injunction to cover only the Braidwood plaintiffs. The U.S. Supreme Court granted review in April 2025.
On review, the Court emphasized that constitutionality of the Secretary of the U.S. Department of Health and Human Services (HHS) appointment of Task Force members turned on whether Task Force members are “principal” or “inferior” officers under the Appointments Clause.
Under the Appointment Clause, principal officers must be appointed by Presidential nomination with Senate confirmation, while inferior officers may be appointed by department heads, such the Secretary of HHS. Whether one is an inferior officer depends on whether they have a superior other than the President and how much power the officer exercises free from control by a superior.
The plaintiffs argued that Task Force members are principal officers who must be nominated by the President and confirmed by Senate because they are not supervised and directed by a superior. The plaintiffs emphasized that, even if Task Force members are inferior officers, their appointment by the Secretary of HHS was invalid, absent specific congressional authorization.
The Court rejected the plaintiffs’ arguments and held that Task Force members are inferior officers. It reasoned that Task Force members are removable at will, and their recommendations are reviewable and voidable by the Secretary of HHS. Therefore, Task Force members are subject to the supervision and direction of the Secretary. The Court highlighted that, because the Secretary answers to the President, Task Force recommendations are supervised by two executive authorities, the Secretary and the President; preserving the executive oversight reserved and required by the Appointments Clause.
The Court further held that Congress has the authority to vest the power of appointment in the Secretary of HHS and has historically done so. Accordingly, the Secretary’s appointment of Task Force members was constitutional.
The Court reversed the judgment of the Fifth Circuit and remanded the case for further proceedings in accordance with its holding that the appointment of and recommendations made by Task Force members are constitutional.
Kennedy v. Braidwood Mgmt. (2025) ___U.S.___ [___L.Ed.2d___] (No. 24-316).
Note: The Fifth Circuit and the Supreme Court decisions reverse the prior district court decision that ended enforcement of the ACA’s preventative care mandates. As a result, health plans and issuers must continue to cover preventative services without cost sharing as recommended by the Task Force. Such preventative care services help people avoid acute illness, identify and treat chronic conditions, reduce the risk of cancer or facilitate early detection, and improve health.