New Tax Law Expands HSA Access and Boosts Dependent Care FSAs
While most Americans were celebrating Independence Day with flags and fireworks, a different kind of spark flew from Washington, DC…this one aimed at your wallet, not the sky.
On July 4th, the “One Big Beautiful Bill Act” was signed into law, bringing with it a host of changes to the U.S. tax code, including several provisions that directly impact Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). For employees, employers, and benefits administrators alike, this marks one of the most significant federal investments in tax-advantaged benefits in recent memory.
Here’s what you need to know.
1. HSA Eligibility: Bronze and Catastrophic Plans
Beginning in 2026, individuals enrolled in any Bronze or Catastrophic plan through the ACA marketplace will finally be HSA-eligible. Previously, these plans – despite their high deductibles – were often excluded due to technical criteria. This fix opens the door for an estimated 7.3 million Americans to start saving (and spending) tax-free dollars on qualified medical expenses.
For many, this correction aligns HSA policy with the real-world costs of coverage and gives consumers more financial control over their healthcare decisions.
2. Direct Primary Care: Now HSA-Compatible
If you or your employees participate in a direct primary care (DPC) arrangement, there’s more good news. The new law allows HSA dollars to be used (tax-free) for periodic DPC fees – up to $150 per month for individuals or $300 for families. And importantly, these arrangements will no longer jeopardize HSA eligibility.
This is a meaningful step for those seeking more personalized, relationship-based healthcare, and it reflects the growing popularity of the DPC model across the country.
3. Telehealth: Permanently Protected
Temporary telehealth flexibilities introduced during the pandemic were set to expire – but not anymore. The new law permanently restores the ability of HSA-qualified high-deductible health plans (HDHPs) to cover telehealth services before the deductible is met. This change is retroactive to plans beginning after December 31, 2024.
It’s a win for both access and affordability…especially for rural communities, busy families, and anyone who’s grown accustomed to the convenience of virtual care.
4. Dependent Care FSA Limit Gets a Long-Overdue Bump
Starting in 2026, the annual contribution limit for dependent care FSAs will rise from $5,000 to $7,500 – the first permanent increase since 1986. For married couples filing separately, the limit moves from $2,500 to $3,750.
While the new caps are not indexed for inflation, the increase is still welcome relief for working parents managing the high cost of childcare.
Bottom Line
For those in the benefits space, these updates are more than just technical tweaks – they’re meaningful enhancements to two of the most valuable tax-advantaged tools available to employees. At Diversified, we’ll be watching closely as the implementation timeline unfolds and providing additional guidance along the way. In the meantime, if you have questions about how these changes might affect your benefit offerings, we’re here to help.
Stay tuned to DBS Digest for more insights and updates on how national policy is reshaping the future of employee benefits.