Republican tax bill could give employee benefits a boost come Jan. 1

If you’re seeking to make some New Year’s resolutions for your total rewards program in 2026, the tax code might be a good place to start.

A number of provisions in the “One Big Beautiful Bill Act” that apply to employee benefits take effect on Jan. 1. Childcare, healthcare, and student loan assistance are among the programs that may get an upgrade as a result of the changes.

Childcare benefits. Two updates to childcare-related benefits will kick in on Jan. 1 of next year.

The annual contribution limit for flexible-spending accounts (FSA), which can be used on expenses like preschool and daycare, will go up to $7,500, from the current limit of $5,000. FSAs are one of the most common benefits employers offer to address workers’ childcare needs, and this is the first time the spending cap has increased since 1986.

As of August, employers were mulling whether to adopt this increased contribution limit, HR Brew reported. The switch would have compliance implications for highly compensated employees, as FSA programs are subject to non-discrimination testing.

A tax credit known as 45F that lets employers write off part of their childcare benefit expenses will also become more generous in 2026. Employers will be able to claim up to 40% of their costs, for a maximum credit of up to $500,000 annually, from the current 25% deduction. The maximum credit for eligible small businesses is even higher, at 50%.

Historically, employers haven’t taken advantage of 45F, but Sarah Rittling, executive director of the First Five Years Fund, told HR Brew she believes these changes could spur higher participation.

Health savings accounts. Employees that are enrolled in high-deductible health plans can continue to use their health savings accounts for telehealth appointments and other types of remote care thanks to a pandemic-era policy that will be renewed and permanently established as of Jan. 1. Under this rule, patients can use HSA money for these services before they meet their deductible.

Workers can also use HSA funds to pay for direct primary care services, if the monthly premiums are $150 or less, starting on Jan. 1. Patients in these programs typically pay a monthly subscription fee for unlimited access to primary care appointments.

Thirty-one percent of firms providing health benefits offer a high-deductible health plan option with an HSA, according to KFF’s most recent employer health benefits survey. Some employers have started to promote HSAs as long-term savings vehicles, given contributions roll over and can be used for anything after age 65.

Student loan payment contributions. Employers have long taken advantage of a tax code provision that allows companies to contribute up to $5,250 a year, before taxes, toward their employees’ educational expenses. Starting in 2026, that limit will be indexed for inflation, so employers may be able to make more generous reimbursements for employee expenses like tuition in future years.

A pandemic-era policy that allowed employers to make tax-free payments toward employees’ student loans under this same section of the tax code will also become permanent as of Jan. 1.

Such benefits may be more pertinent to employees with student loans given repayments on them resumed in October 2023 after a three-year pause. Nearly 30% of student loan borrowers were behind on their payments as of 2024, according to a Government Accountability Office report.