Top 2026 Benefit Plan Changes Every Employer Should Know

This article provides general information and does not constitute legal advice.

If you’re managing employee benefits, mark your calendar: January 1, 2026 brings the biggest federal benefits overhaul in over a decade. The One Big Beautiful Bill Act (OBBBA) is reshaping everything from dependent care FSAs to executive compensation, and employers need to act now to stay compliant.

This comprehensive article covers the 2026 employee benefits law changes, new IRS contribution limits, FSA updates, HSA rules, tax credits, and step-by-step compliance requirements for HR professionals and benefits administrators.

Whether you’re updating plan documents, adjusting payroll systems, or simply trying to understand what’s coming, this article breaks down exactly what changes, when it takes effect, and what you need to do about it.

What’s Changing in 2026? Key OBBBA Provisions

The OBBBA touches nearly every aspect of benefits administration. Here’s what HR teams need to know about the major changes.

Dependent Care FSA Changes: New $7,500 Limit

Good news for working parents: the Dependent Care FSA limit is increasing to $7,500 per household for 2026 (or $3,750 if married filing separately). That’s a significant increase from the previous $5,000 limit.

Employer action required: Update your plan documents and Section 125 cafeteria plan election forms before January 1, 2026. Note that this new limit isn’t indexed for inflation, so it will remain at $7,500 unless future legislation changes it.

Key dates:

• Effective date: January 1, 2026
• Plan amendment deadline: December 31, 2025 (for calendar-year plans)
• Employee communication: At least 60 days before open enrollment

Employer-Provided Child Care Tax Credit Expansion

If your organization provides or subsidizes child care facilities, you can now claim credits up to $500,000 ($600,000 for small businesses), covering 40-50% of eligible expenses.

This is a real opportunity to enhance your retention strategy while offsetting facility costs.

Paid Family and Medical Leave Tax Credit (Permanent)

The federal Paid Family and Medical Leave Credit is now permanent, covering up to 25% of qualifying wages. Employers can also set a 6-month service minimum instead of the previous 12-month requirement.

This change makes it financially easier for small and medium-sized businesses to offer competitive paid leave benefits without bearing the full cost.

Student Loan Repayment Assistance: Permanent Tax Exclusion

The tax-free exclusion for employer student loan repayment assistance is now permanent at $5,250 per year, with inflation indexing beginning in future years.

Action item: Update your Section 127 educational assistance plans to include student loan repayment provisions if you want to offer this increasingly popular benefit.

Trump Accounts: New Tax-Advantaged Savings for Children

Starting in July 2026, employers can contribute to new tax-advantaged savings accounts for employees’ children under 18.

Contribution limits:

• Employer contributions: Up to $2,500 per child
• Parent contributions: Up to $5,000 per child
• Total combined: $7,500 per child annually

Important compliance requirements:

• Requires compliant plan documents
• Subject to nondiscrimination testing
• Must follow IRS Section 125 cafeteria plan rules

Start planning now even though contributions don’t begin until mid-year 2026.

HSA and HDHP Rule Updates for 2026

Several changes make Health Savings Accounts (HSAs) more accessible and useful for employees:

• Bronze and catastrophic ACA plans now qualify as High Deductible Health Plans (HDHPs) for HSA purposes
• First-dollar telehealth coverage under HDHPs is permanently allowed (no deductible required)
• Direct primary care payments now count as qualified medical expenses

These changes provide greater flexibility for employees using HSAs while maintaining the tax advantages of these accounts.

Executive Compensation and Tax Changes Under OBBBA

Section 162(m) Executive Compensation Deduction Cap

The Section 162(m) deduction cap of $1 million now applies across controlled groups, aggregating compensation across affiliates. Public companies and large private employers need to review their executive pay structures carefully.

This change affects how companies with multiple entities structure executive compensation packages and may impact tax deductions for highly compensated employees.

Tax-Exempt Employer Excise Tax Expansion

The excise tax for tax-exempt organizations now covers additional highly compensated employees and includes retroactive look-backs. If you’re a nonprofit or tax-exempt employer, reassess your compensation packages and deferred arrangements.

Repealed Tax Exclusions: What’s No Longer Deductible

Bicycle commuting reimbursements and moving expense reimbursements are permanently excluded from tax benefits (except for military and intelligence employees).

Employers should remove these benefits from cafeteria plans and update employee communications accordingly.

Form 1099 Reporting Threshold Increase

The reporting threshold increases from $600 to $2,000, with indexing beginning in 2027. This means fewer 1099 forms for small contractors and vendors.

2026 IRS Benefit Limits: Complete Reference Chart

Here are the key contribution limits you’ll need for 2026 benefits planning and payroll administration:

Health Savings Accounts (HSA) 2026 Limits:

• HSA Self-Only Coverage: $4,400
• HSA Family Coverage: $8,750
• HSA Catch-Up Contribution (Age 55+): $1,000

Flexible Spending Accounts (FSA) 2026 Limits:

• Health FSA Maximum: $3,400
• Dependent Care FSA: $7,500 ($3,750 married filing separately)

Commuter Benefits 2026:

• Transit Pass Monthly Limit: $340
• Parking Monthly Limit: $340

Adoption and Education Benefits 2026:

• Adoption Assistance Exclusion: $17,670
• Educational Assistance (Section 127): $5,250
• Student Loan Repayment Assistance: $5,250

Retirement Plan Contribution Limits 2026:

• 401(k) Elective Deferral: $23,500 (projected)
• 401(k) Catch-Up (Age 50+): $7,500 (projected)
• IRA Contribution: $7,500

Health Reimbursement Arrangements (HRA) 2026:

• QSEHRA Self-Only: $6,550
• QSEHRA Family: $13,100
• Excepted Benefit HRA: $2,200

New for 2026:

• Trump Account Employer Contribution: $2,500 per child
• Trump Account Parent Contribution: $5,000 per child

Note: These are statutory maximum contribution limits. Employers may adopt lower plan-specific limits based on their benefits strategy and budget.

2026 Employee Benefits Compliance Checklist

Don’t wait until December to start preparing. Here’s what needs to happen before your 2026 plan year begins:

1. Update Plan Documents and SPDs

Required amendments:

• Section 125 cafeteria plans
• HSA plan documents
• FSA and Dependent Care FSA plans
• Retirement plan documents (401(k), 403(b))
• Health Reimbursement Arrangements

Update Summary Plan Descriptions (SPDs) to reflect new contribution limits, eligibility rules, and benefit types.

2. Establish New Benefit Plans

Create compliant plan documents for:

• Trump Accounts (if offering)
• Student loan repayment assistance programs
• Expanded paid family leave benefits

Establish nondiscrimination testing frameworks for new benefit types.

3. Configure Payroll and HRIS Systems

System updates required:

• Modify payroll deduction codes for new limits
• Update employer contribution schedules
• Configure Trump Account deductions (if applicable)
• Adjust FSA and HSA contribution caps
• Update benefits enrollment platforms

Coordinate closely with your payroll provider to ensure systems are configured correctly before open enrollment.

4. Conduct Nondiscrimination Testing

Re-run required nondiscrimination tests after implementing changes:

• Section 125 cafeteria plan testing
• Section 129 Dependent Care FSA testing
• HSA comparability testing (if applicable)
• Trump Account nondiscrimination testing

Higher contribution limits may shift testing results, potentially affecting highly compensated employees.

5. Prepare Employee Communications

Communication deliverables:

• Updated Summary Plan Descriptions (SPDs)
• Summary of Material Modifications (SMMs)
• Open enrollment guides highlighting 2026 changes
• Benefit comparison charts with new limits
• FAQs addressing common questions

Distribute communications at least 60 days before open enrollment begins.

6. Vendor Coordination and Testing

Confirm that all benefits vendors have implemented 2026 changes:

• Insurance carriers
• Third-party administrators (TPAs)
• Payroll processors
• Benefits enrollment platforms
• HSA/FSA administrators

Conduct testing to verify contribution caps and eligibility logic work correctly.

7. Financial Planning and Budgeting

Update 2026 benefits budgets to account for:

• Potential increases in employee FSA elections
• New employer contributions (Trump Accounts, childcare credits)
• Administrative costs for new benefits
• Legal and consulting fees for compliance

Model different participation scenarios to prepare for various cost outcomes.

Strategic Benefits Recommendations for 2026

Beyond compliance, these OBBBA changes create opportunities to strengthen your employee benefits offering:

Maximize Dependent Care FSA Participation

Strategy: Educate employees about the higher $7,500 pre-tax limit during open enrollment through targeted communications and enrollment webinars.

Impact: Increased employee tax savings and improved retention among working parents.

Leverage the Employer Child Care Credit

Strategy: If you provide or subsidize childcare facilities, claim credits up to $500,000 to offset costs while enhancing your employer brand.

Impact: Strengthen recruitment and retention while controlling childcare benefit costs.

Expand Paid Family Leave Programs

Strategy: Take advantage of the permanent 25% tax credit to offer competitive paid leave without bearing the full cost.

Impact: Reduce turnover and improve employee satisfaction, particularly among new parents and caregivers.

Implement Student Loan Repayment Assistance

Strategy: Add student loan repayment as a standard Section 127 educational assistance benefit—a high-value offering many competitors haven’t adopted yet.

Impact: Differentiate your benefits package and attract younger talent struggling with student debt.

Promote HSA Flexibility Under New Rules

Strategy: Highlight that bronze and catastrophic plans now qualify as HDHPs, and that first-dollar telehealth is permanently allowed.

Impact: Make HSA-eligible plans more attractive to cost-conscious employees who previously avoided high-deductible options.

Consider Trump Accounts for Working Families

Strategy: Offer Trump Accounts as a differentiating benefit that supports employees with young children.

Impact: Strengthen your family-friendly employer brand and provide meaningful financial support to working parents.

Understanding OBBBA Compliance Risks

The OBBBA aims to streamline tax benefits and expand affordability, but it also increases employer accountability. Failing to update plan documents or testing procedures could result in serious consequences:

Potential penalties and risks:

• IRS penalties for non-compliant plan documents or incorrect withholding
• Plan disqualification that eliminates tax advantages for all employees
• Failed nondiscrimination tests requiring corrective distributions to highly compensated employees
• DOL investigations and potential fiduciary breach claims
• Employee complaints or lawsuits related to benefits miscommunication or errors

Work closely with your ERISA counsel, tax advisors, and benefits administrators throughout late 2025 to ensure every component—from payroll systems to employee communications—is ready for January 1, 2026.

Preparing Your Organization for 2026 Benefits Changes

The One Big Beautiful Bill Act represents a pivotal shift in federal employee benefits law. By taking action now—updating documentation, aligning systems, and communicating changes—you’ll ensure compliance while maximizing the value of your benefits program.

Timeline for 2026 compliance:

• Q4 2025: Finalize plan amendments and vendor agreements
• November 2025: Distribute employee communications and updated SPDs
• December 2025: Complete nondiscrimination testing
• January 1, 2026: New FSA limits and most OBBBA provisions take effect
• July 2026: Trump Account contributions begin

For small and medium-sized businesses, these updates present a real opportunity to modernize your offerings, attract top talent, and strengthen retention through tax-advantaged benefits that were previously difficult to implement.

The key is starting early. Don’t wait until the last minute to tackle plan amendments, system updates, and employee communications. The employers who prepare thoroughly will enter 2026 with confidence, while those who delay may face compliance headaches and missed opportunities.

Additional Resources for HR Professionals

Where to find official guidance:

• IRS.gov: Tax code updates and contribution limits
• Department of Labor (DOL): ERISA compliance requirements

The IRS and DOL will release additional notices, FAQs, and implementation guidance through late 2025 confirming specific details about OBBBA compliance requirements.

Read More About Benefits Compliance

For a deeper dive into 2026 compensation and benefits compliance, visit the Compensation & Benefits Launch Hub for guides, templates, and other resources.

Frequently Asked Questions About 2026 Benefits Changes