The congressional budget reconciliation bill, which President Donald Trump signed on July 4, 2025, includes various provisions of interest to employee benefits and executive compensation attorneys.
No Impact on Tax Provisions Related to Employer-Sponsored Health and Retirement Benefit Plans
The GOP mega budget reconciliation package made no changes to individual and business tax provisions that concern employer-sponsored health and retirement benefit plans. Discontinuation or decreases in retirement tax benefits were a possibility when Congress was considering the 2017 Tax Cuts and Jobs Act, so changes were anticipated during this congressional session. President Trump had also claimed during his campaign that he would repeal the "interest loophole" that allows professional investors to pay long-term capital gains rates on their earned income. Nonetheless, Congress left this loophole intact.
Benefits attorneys also feared Congress would place a cap on the exclusion for employer-sponsored health coverage, and so-called "Rothification," which is shifting retirement plan contributions from pre-tax to after-tax to raise federal revenue. Again, Congress considered both these options in 2017, but failed to include them. Along with the lack of major health and retirement tax policy changes in the reconciliation budget bill, most in the employee benefits community see the legislation as a win, at least about those issues.
Expansion of Telehealth Access
The budget bill permanently expands pre-deductible telehealth access for individuals with high-deductible health insurance plans. Congress previously expanded this benefit during the COVID-19 pandemic, but the benefit lapsed at the end of 2024. This provision applies to all plan years beginning after December 31, 2024. It provides that the failure to have a deductible for telehealth and other remote care services will not affect a high-deductible health plan's tax treatment.
Expansion of Access to Direct Primary Care Arrangements
Another notable provision in the budget reconciliation bill is the expansion of access to direct primary care arrangements (DPCAs). These arrangements allow individuals with high-deductible health plans to have access to a primary care physician through payment of a membership fee. Under the new legislation, individuals can use funds in their health savings accounts (HSAs) to pay for their DPCA membership fees, as these fees are now categorized as medical expenses under the tax code. However, there are caps on the fees. Furthermore, individuals with high-deductible health plans would still be eligible for HSAs, even if they were participating in a DPCA; typically, individuals with access to another health plan cannot participate in HSAs.
Changes to the Deduction Limitation on Highly Compensated Employees
The budget reconciliation bill also expands the limitation on public company tax deductions for compensation greater than $1 million to a larger group of executive-level employees. This tax deduction, which Congress first enacted in 1993, originally applied to the top five highest-paid employees in a public company, but Congress has expanded its applicability over the years. The most recent changes slightly broaden the affiliated group rules that already exist, so whether it affects a particular company depends largely on its structure.
Extension of the Paid Family Leave Tax Credit for Employers
Another provision in the legislation permanently extends the general business tax credit for employers that voluntarily offer 12 weeks of paid family and medical leave to their workers. This tax credit originated in 2017 for two years, but Congress has periodically extended it over the years. The legislation also clarifies how the rule applies to part-time employees.
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