OBBBA Employee Benefits Changes: What Hawaii Employers Need to Update in 2026

The One Big Beautiful Bill Act (H.R. 1, P.L. 119-21) didn't just change how tips and overtime are taxed. It also made meaningful changes to employee benefits. For Hawaii employers who offer dependent care benefits, student loan assistance, or health savings account-eligible plans, several provisions require action in 2026.

Dependent Care Assistance Program: Limit Raised to $7,500

For most of the last three decades, the maximum annual exclusion for employer-provided dependent care assistance under a Dependent Care Assistance Program (DCAP) was fixed at $5,000, with no adjustment for inflation. The OBBBA changes that.

For plan years beginning on or after January 1, 2026, the dependent care assistance exclusion increases from $5,000 to $7,500 ($3,750 for married individuals filing separately). This means employees can exclude up to $7,500 in employer-provided dependent care assistance from their taxable income. That's a real increase for families with childcare expenses in Hawaii, where childcare costs are among the highest in the country.

What This Means for Your Plan

• If you offer a DCAP or Dependent Care FSA, you must update your plan documents to reflect the new $7,500 limit
• Your payroll system must be updated to allow the higher pre-tax contribution amount
• Communicate the change to employees during open enrollment or as soon as possible

DCAP vs. the Dependent Care Tax Credit: An Important Distinction

The OBBBA did not increase the dependent care tax credit maximum (still $3,000 for one child / $6,000 for two or more children). However, it did raise the percentage of qualifying expenses subject to the credit from 35% to 50%, subject to income phaseouts.

This creates a planning consideration for employees: depending on their income level, the dependent care tax credit (now at 50% of expenses) may provide a greater benefit than participation in a DCAP. Employees at higher income levels will generally still benefit more from a DCAP. Employees at lower income levels may find the expanded tax credit more valuable. Encourage employees to consult a tax advisor to determine which approach is better for their situation.

Student Loan Repayment Assistance: Now Permanent

The CARES Act of 2020 created a temporary provision allowing employers to make tax-free student loan repayment contributions of up to $5,250 per employee per year. This was an exclusion from income tax for employees, and from payroll taxes for both employees and employers. The provision was originally set to expire December 31, 2025.

The OBBBA makes this benefit permanent. Key details:

• Annual limit: $5,250 per employee, per year
• Tax treatment: Excluded from the employee's federal income taxes; also excluded from payroll taxes (FICA) for both employer and employee
• Inflation indexing: For taxable years beginning after 2026, the $5,250 limit will be indexed for inflation
• Qualifying payments: Must be applied to qualifying student loan principal or interest

If You Offer This Benefit

If you already have a student loan repayment assistance program, no changes are required. The benefit simply continues. If you were planning to let it lapse at year-end 2025, you now have a permanent program to offer instead. Talk to your benefits administrator or ERISA attorney about adding it to your plan if you haven't already.

Health Savings Account (HSA) Changes

The OBBBA made three significant changes affecting Health Savings Accounts (HSAs). These matter for Hawaii employers who offer High Deductible Health Plans (HDHPs) or are considering offering them.

1. Bronze and Catastrophic Exchange Plans Now Qualify as HDHPs

Beginning January 1, 2026, individual bronze or catastrophic coverage offered on a health insurance Exchange (marketplace) will be treated as a qualifying High Deductible Health Plan. This means employees enrolled in one of these plans (which were previously incompatible with HSA contributions) will now be considered HSA-eligible.

For Hawaii employers: if any of your employees purchase their own coverage on the Hawaii Health Connector marketplace and are enrolled in a bronze or catastrophic plan, they may now be able to open and contribute to an HSA. This is relevant to employers who don't offer employer-sponsored coverage, or where employees waive employer coverage.

2. Telehealth Safe Harbor Made Permanent

The CARES Act created a safe harbor allowing HDHPs to cover telehealth services on a first-dollar basis (before the deductible is met) without disqualifying employees from HSA eligibility. This safe harbor expired for plan years beginning on or after January 1, 2025.

The OBBBA makes this safe harbor permanent and retroactively applies it to 2025 plan years. In practical terms:

• HDHPs can continue to cover telehealth and remote care services with no deductible
• Employees enrolled in these plans are not disqualified from contributing to an HSA
• This applies retroactively to 2025, so there is no gap year for plan compliance

This matters in Hawaii especially — telehealth has taken off here in ways you don't see on the mainland, filling gaps for patients on the neighbor islands who can't easily get to a specialist.

3. Direct Primary Care Arrangements Now HSA-Compatible

A Direct Primary Care arrangement (DPA) is a membership-style model where patients pay a fixed monthly fee for unlimited access to certain primary care services, without additional fees at the time of service. These arrangements were previously considered incompatible with HDHPs, disqualifying employees from HSA contributions.

Beginning in 2026, participation in a qualifying DPA will no longer disqualify individuals from contributing to an HSA, provided:

• DPA fees do not exceed $150 per month for an individual or $300 per month for a family (both amounts adjusted annually for inflation)
• Services under the DPA do not include procedures requiring anesthesia, prescription drugs (other than vaccines), or certain laboratory services

The Act also makes certain DPA fees reimbursable through an HSA.

Bike Commuter Benefit Eliminated

The OBBBA eliminated the qualified bicycle commuting reimbursement benefit. Previously, employers could reimburse employees up to $20/month for bike commuting expenses on a tax-favored basis. That exclusion no longer applies under the OBBBA.

If you offer a bicycle commuting benefit, consult your benefits advisor about whether and how to update or eliminate it from your plan.

Employer-Provided Childcare Credit: What Changed

The OBBBA expanded the employer-provided childcare credit, which encourages employers to offer childcare facilities or assistance to employees. The credit covers employers who pay for or provide qualified childcare facilities or resource and referral services.

The expanded credit raises both the credit percentage and the annual cap. Talk to your CPA about the specific numbers and eligibility rules — documentation matters here, and you want to coordinate it with your tax filing carefully.

Action Checklist for Hawaii Employers

• ☐ Update DCAP / Dependent Care FSA plan documents to reflect the new $7,500 limit for plan years beginning on or after 1/1/2026
• ☐ Update payroll system to allow the higher DCAP pre-tax contribution amount (see how to do payroll in Hawaii)
• ☐ Communicate DCAP changes to employees — especially those with dependent care expenses who may benefit from the higher limit
• ☐ Student loan repayment program — if you offer it, confirm it continues; if you don’t, evaluate adding it now that it’s permanent
• ☐ Review your HDHP plan with your benefits broker — confirm telehealth safe harbor is applied retroactively for 2025 and confirm ongoing compliance
• ☐ If you offer a DPA arrangement, confirm with your benefits advisor whether it meets the new HSA-compatibility requirements
• ☐ Remove or update bike commuter benefit if you currently offer it
• ☐ Ask your CPA about the expanded childcare credit — if you offer childcare benefits, you may qualify for a larger credit

Getting the OBBB benefit changes into your payroll system correctly (tip exemptions, overtime exclusions, HSA adjustments) is the kind of implementation a Hawaii payroll company handles as federal tax law evolves.

Frequently Asked Questions

What changes did the OBBBA make to Dependent Care Assistance Programs?

The One Big Beautiful Bill Act (OBBBA) raised the annual Dependent Care Assistance Program (DCAP) limit from $5,000 to $7,500 (from $2,500 to $3,750 for married individuals filing separately), starting in 2026. This increase allows employees to exclude more employer-provided dependent care assistance from taxable income and payroll taxes. Hawaii employers offering a DCAP must update their plan documents and payroll systems to reflect the new limit.

Did the OBBBA make student loan repayment assistance permanent?

Yes. The OBBBA made the employer student loan repayment assistance exclusion permanent. Under Section 127, employers can contribute up to $5,250 per year toward an employee's student loan repayment on a tax-free basis. Previously this was a temporary provision requiring periodic renewal. Hawaii employers offering this benefit can continue it with certainty.

What Health Savings Account changes did the OBBBA introduce?

The OBBBA expanded HSA eligibility and contribution rules. Notably, it allowed HSA-compatible plans more flexibility around coverage of preventive care and direct primary care arrangements. Hawaii employers offering HSA-eligible high-deductible health plans should review the updated eligibility rules to confirm their plans remain qualified and that contribution limits are applied correctly.

Do Hawaii employers need to update payroll systems for OBBBA benefit changes?

Yes. Key payroll system updates include: adjusting the DCAP pre-tax deduction limit to $7,500, confirming student loan repayment contributions are tracked separately from tuition reimbursement for the $5,250 annual cap, and reviewing HSA deduction amounts if contribution limits changed. Plan documents and employee elections may also need updating before the next open enrollment.