The landscape of employer‑provided fringe and other benefits continues to evolve rapidly as federal legislation, regulatory guidance, and workplace trends influence both compliance obligations and opportunities for improving total compensation strategies. The One Big Beautiful Bill Act (“OBBBA”), enacted on July 4, 2025, makes significant changes to fringe and other workplace benefits that employers are able to offer employees.
This article highlights several of the significant changes that are effective in 2026, and considerations associated with these programs.
Employer Payment of Student Loans as a Qualified Educational Assistance Benefit
As employers grapple with workforce recruitment and retention challenges, educational assistance has become a differentiator. OBBBA makes permanent tax-free student loan repayment assistance as a Tax Code Section 127 qualified educational assistance program. Employers can offer up to $5,250 per year (indexed for inflation) in student loan repayment benefits to employees as a tax-free benefit. Employer payments can be made to employees or to student loan servicers. To qualify for tax free treatment, an employer must establish a formal, separate written plan document that outlines the benefits, eligibility, and otherwise complies with the Section 127 rules. The plan cannot offer employees a choice between educational assistance and other forms of taxable compensation, such as cash or additional paid time off. Employers should be aware that there are discrimination rules that prohibit discrimination in favor of highly compensated employees and preferential treatment to officers or shareholders.
Health Flexible Spending Arrangement (FSA) and Dependent Care Assistance
Health FSAs remain a key tax‑advantaged benefit that helps employees pay for medical expenses not covered by insurance. For plan years beginning in 2026, a Section 125 cafeteria plan may allow an employee to request a salary reduction contribution for a health FSA in an amount up to $3,400, an adjustment that reflects the cost‑of‑living increase. OBBBA permanently raised the annual income exclusion for dependent care assistance programs, which includes employee pretax contributions to dependent care flexible spending accounts and employer-subsidized childcare expenses, such as onsite day care centers. The exclusion amount increases from $5,000 to $7,500 for 2026. Eligible uses of dependent care flexible spending account funds are daycare and preschool for children under 13, before- and after-school programs, summer day camps (but not overnight camps), babysitting during work hours, and adult daycare for elderly dependents. Employers should be aware that Tax Code Section 129 includes nondiscrimination requirements. This means an employer cannot exclude dependent care assistance from a highly compensated employee’s wages unless the program’s benefits are structured so they do not favor highly compensated employees. To qualify for tax‑free treatment, the program must also meet the specific requirements outlined in Section 129(d) of the Internal Revenue Code.
First Dollar Telehealth Coverage Made Permanent
During COVID‑19 pandemic, the federal CARES Act temporarily let high‑deductible health plans (“HDHPs”) cover telehealth visits without requiring employees to meet their deductible first. That rule was supposed to end in 2025. But under OBBBA, this rule is now permanently brought back for plan years starting after December 31, 2024. This means HDHPs are allowed—but not required—to cover telehealth services before the normal deductible is met. Employers who began charging HDHP participants fair market value for telehealth services can either continue that practice or may reimburse participants for the fair market value of telehealth services charged since January 1, 2025. Plan sponsors who decided not to charge for telehealth may rely on the retroactive effect of OBBBA, and do not need to act.
Moving Expense Reimbursement Rule Changes
With good reason, employers are sometimes confused on the tax treatment of payments relating to relocation and moving expenses. From 2018 to 2025, prior favorable tax treatment was suspended in 2017 tax legislation. OBBBA made permanent the moving expense deduction limitation under Tax Code Section 217 and employer-paid moving expense exclusion under Section 132(g) except for two categories of employees. Effective for tax years beginning in 2026, employers must be aware that tax‑free treatment is now restricted solely to reimbursements provided to active‑duty members of the U.S. Armed Forces relocating under military orders and to employees or appointees of the U.S. intelligence community who are required to relocate due to an official reassignment. All other employer‑funded relocation benefits will constitute taxable wages. Employers offering relocation assistance should review their policies and payroll practices to ensure proper tax withholding and reporting and should clearly communicate the tax consequences of such benefits to affected employees.
Artificial intelligence (AI) Literacy and AI Development Programs
One of the most forward‑looking changes introduced in the IRS’s annual fringe benefit guidance in Publication 15-B, is the explicit inclusion of AI literacy and AI development programs as potentially excludable fringe benefits. This reflects a broader governmental push to expand workforce readiness in emerging technologies as noted in Executive Order (EO) 14179, “Removing Barriers to American Leadership in Artificial Intelligence” (January 2025), and the subsequently published Winning the Race: America’s AI Action Plan (July 2025). The Publication notes that employer-provided AI literacy and skill development programs may be tax-free as working condition fringe benefits if they maintain or improve an employee’s job skills at their current job. If AI training does not meet the “working condition” rule under Tax Code 132 (e.g., it prepares an employee for a new role), it may still qualify under Section 127. This allows employers to provide up to $5,250 per year, per employee, in tax-free educational assistance.
Trump Accounts
OBBBA creates new tax-favored accounts for eligible children born after December 31, 2024, called Trump Accounts. These accounts have a $5,000 per year (indexed) contribution limit and distributions from the account are generally prohibited until the child turns 18. Employers can make up to $2,500 in nontaxable contributions per employee. These tax-free contributions require a written plan, and must satisfy nondiscrimination, eligibility, and notification rules, similar to those for dependent care assistance programs. Contributions must be made to specialized, state-sponsored or financial institution-managed accounts for children similar to IRAs.
In summary, these 2026 fringe‑benefit reforms introduce both expanded opportunities and heightened compliance obligations for employers. Careful review of plan documents, payroll procedures, and communication practices will be essential to maintaining tax‑favored treatment. By preparing now, employers can mitigate risk and continue offering competitive, compliant benefit programs.