Following the passage earlier this month of the "One Big Beautiful Bill" Act (OBBB), employers across the country, particularly in states where tipped wages are prevalent, are closely watching the sweeping changes this legislation brings.
Designed to address provisions from the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire, the OBBB spans more than 1,100 pages and includes significant updates related to employee benefits, tax credits, and workforce development.
Below are the key provisions employers should be aware of:
Employer-Provided Childcare Credit Gets a Boost
The OBBB enhances the Employer-Provided Childcare Credit to make it more appealing for businesses looking to support working families, making it more attractive for employers looking to enhance recruitment and retention. Previously capped at $150,000 annually, the credit has increased to $500,000—or $600,000 for qualifying small businesses. In addition, the credit now covers up to 40% of qualified childcare expenses (50% for small businesses), up from 25%.
Qualified expenditures include costs related to constructing, expanding, or operating on-site childcare facilities, employee training, scholarship programs, and enhanced pay for highly trained childcare staff. Employers may also qualify for the credit if they contract with third-party licensed providers or jointly own and operate a childcare facility.
Expanding Paid Family and Medical Leave
Because the OBBB gives employers an opportunity to receive tax credits for Paid Family and Medical Leave (PFML), businesses should carefully weigh both the cost and expected utilization of the program (as they should with any employer-provided benefit). The OBBB offers additional benefits, expanding how the credit may be calculated and offering advantages even if the program isn't heavily used. Before the OBBB, the employer credit was based on wages paid to qualifying employees while on PFML. Now, the credit still includes those wages but also covers a portion of the insurance premiums paid by the employer for PFML coverage. This gives employers more flexibility to offer PFML, even if not many employees end up using it.
The OBBB also expanded eligibility by lowering the employment requirement from 12 months to six. This change could encourage more employers to adopt PFML policies. However, if states later mandate PFML, any leave required by state law won't count toward the federal tax credit.
529 Account Changes
The OBBB amends the qualified usage of 529 education savings plans to support a broader range of workforce development pathways. In addition to traditional tuition and college-related expenses, 529 funds can now be used for vocational programs, licensing tests, and credentialing courses.
Now, employees looking to advance or obtain credentials prior to entering the workforce or to obtain a promotion or new position can utilize the set-aside funds.
The OBBB designates several credentialing programs where 529 funds can be used, including:
- State-approved programs by the Workforce Innovation and Opportunity Act (WIOA), such as vocational and technical programs (i.e., state mechanical certifications, apprenticeships, licensed medical training)
- Programs listed in the Web Enabled Approval Management System (WEAMS) of the Veterans Benefits Administration, such as GI Bill-approved programs, including aircraft maintenance, cybersecurity, and project management
- Credentialing programs (widely recognized as providing reputable credentials in a given occupation), offering preparation courses for industry-recognized licenses or certifications (i.e., CPA exams, the bar exam, CDL licensing fees)
- Programs identified by the Secretaries of Treasury and Labor as being a "reputable program" for obtaining a recognized postsecondary credential.
This expansion allows individuals to use their 529 savings to gain skills needed for career advancement or to transition into new fields.
Dependent Care FSAs Expand in 2026
Starting in 2026, employers can update their Flexible Spending Account (FSA) benefit offerings to include the increased dependent care limit of $7,500 ($3,750 for married couples filing separately). With affordability and family support being key competitive drivers in recruitment, this change presents employers with an opportunity to modernize benefits packages while reducing employees' out-of-pocket expenses that come with childcare and other dependent-related costs.
To prepare, employers should consult with their FSA third-party administrators to update their cafeteria plans (under I.R.C. § 125) and make necessary plan amendments. These changes should be communicated during the 2025 open enrollment period to ensure employees are aware of the new benefits.
Student Loan Reimbursement Gets Codified
What began as a temporary provision under the CARES Act is now permanent: employers can offer up to $5,250 annually in student loan repayment assistance, tax-free. This benefit, which had been extended multiple times through short-term legislation, is now codified under the OBBB.
Employers previously hesitant to adopt this benefit due to its temporary nature may now feel more confident in offering it. With the end of forbearance and changes to repayment programs, student debt remains a top concern for many employees—especially younger talent—making this benefit a valuable recruitment and retention tool.
Looking Ahead to 2026
The OBBB introduces durable changes that give employers new tools to modernize their benefits offerings. However, implementation won't be one-size-fits-all. Each provision comes with unique compliance and reporting obligations that must be carefully coordinated with existing plans.
As these changes become part of long-term workforce strategies, employers have an opportunity to revisit benefit programs that were previously too temporary or uncertain to adopt. Employers should work closely with legal counsel, tax professionals, and benefits administrators to determine which provisions align with their business goals.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
