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 the 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 Continue 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 employees’ 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.