The Big Beautiful Bill Is Now Law. How Are You Affected? (Part 2)

Changes to HSAs

Evan Barnard: Welcome back to “The Investor Coaching Show.” This is not a segment about Billy Joe and Bobby Sue. And to my knowledge, there was nothing on disability insurance in the Big Beautiful Bill, but there was some stuff on, we’ll start with Health Savings Accounts — those were tweaked a little bit.

Interestingly enough, quite a few things got struck down on the Senate version of the bill that ultimately passed from what the House had originally suggested. So it ended up that there really wasn’t a big change on Health Savings Accounts. A couple of the big things, and you can jump in if I miss some of this stuff, but it increased the availability or access to a Health Savings Account.

Previously, you needed to have a high-deductible health plan, which is a technical term in the code under the Affordable Care Act. But you had to have a certain high deductible if you were an individual, I think it was around $4,500 or so. Family, $7,000, or $8,000, $9,000, something like that to qualify for the HSA, and meet the contribution requirements and tax-free growth and all of that.

It’s a triple win. And an HSA’s a really good deal if you have the dollars to not overfund it, but fully fund it. But it expanded a little bit of what you can spend the money on and who can have one.

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So now, if you’re in the Affordable Care Act marketplace, and you have a Bronze or Catastrophic level plan, you can create an HSA.

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Now, again, all of this is by statute now. That doesn’t mean that Monday, you could find a carrier that has an HSA chassis for your Bronze plan. It may be Wednesday or Thursday, capitalism can move pretty fast when it wants to. But anyway, now if you have a Bronze plan under the Affordable Care Act, you can have an HSA.

Using Your HSA for Direct Primary Care

Then one other change is you can now use your HSA — it doesn’t change your eligibility, but in terms of spending, you can use your HSA to pay for what they call direct primary care, which is like what we call a concierge physician. You may have a subscription with your healthcare professional, $150 a month or $300 a month for the family or something like that.

But you don’t have a receipt for “I got sick” or those things.

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Now, those payments are eligible to be made out of your HSA, instead of having to get it reimbursed through the health insurance plan. 

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And then the other thing, kind of esoteric — you always wonder about the lobby organization to get some of these specifics in there — is it includes a provision to allow telehealth services to be covered on a pre-deductible basis for individuals enrolled in a high-deductible health plan. I’m not sure who that was aimed at, other than if you have an event, I think they’re wanting to decrease your need to spend a ton on healthcare.

A major health expense, to get some feedback that you can access tax-free before you pull the trigger on a bigger procedure, that’s my guess there. Any other changes on HSAs?

James Dickson: To my knowledge, you hit all the high points.

EB: In terms of accessibility?

JD: Yeah. No, I think you hit them all.

EB: Okay. So they’re still good. There was some other stuff, they were going to prevent gender-affirming care, and some other esoteric things on the House side, but that didn’t make it through the Senate.

And it was one of the few, I won’t spend much time on this, but it was one of the few changes related to health or even some of the tax stuff, that did not have any language around verifying citizenship or immigration status. So it was kind of unique in that regard, that they just left that alone and that didn’t survive the Senate bill.

Changes to 529 Plans

EB: How about 529s? What are some of the changes coming up in 529s?

Jonathan Walker: Well, I know in 529s, they made some changes on some of the qualified expenses that you can have coming out of those accounts. As you know, 529s are set up for academic purposes. One of the big ones, really, 529s, a lot of times they’re set up for college kids, but a lot of the changes are coming in the K-12 area.

As of now, you can spend $10,000 a year for K-12 tuition, I think they’re doubling that to $20,000 a year. I think that’s one of the big changes in the 529.

They’re going to allow you to use the 529 for testing fees, which could be huge for K-12 kids that are trying to get into college, et cetera. You have SAT fees, ACT fees.

EB: Interesting.

JW: In the college arena, LSAT fees, those types of fees.

EB: MCAT.

JW: Yeah, MCAT fees, all those nice acronyms, trying to get to higher education.

EB: We thought financial planners had the monopoly on acronyms.

JW: There are some, like you said, minutiae in regards to this, but they’re allowing some tutoring outside the home that they’ll cover. You have to fit some qualifications, like it can’t be a relative. I’m not positive on all the ins and outs on what’s going to be covered under that, but they’re going to cover tutoring.

Educational therapies for students with disabilities, and they’re going to also cover books, curriculums, and things like that for homeschools. I believe that’s correct, when I read through that. So they’re just really expanding the qualified expenses inside of that 529 plan.

EB: Excellent.

JD: I remember when those first came out, unless it was a four-year accredited college, you couldn’t draw a dime out of it.

JW: That’s exactly right.

JD: 

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They’ve been a great tool for parents that are looking to utilize ways to help. I don’t think most parents are looking to fund 100% of this. 

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It’s one of those things that’s changed over time.

EB: Yes, it has. Yeah, it has.

JD: But I do think parents are still looking for ways to combat the massive amount of information that comes at them, as their kids are getting older and getting closer to college age.

JW: Yeah. Like you said, just a few years ago, we’ve had more clients worried about overfunding a 529 than underfunding a 529.

JD: Yeah, yeah.

EB: Yeah. I think from a planning standpoint, listening to this, is the expansion of trade school.

JW: Right.

JD: Yeah, absolutely.

EB: And if you’re going to go into HVAC, if you’re going to go into welding, and just the ability to use it for some of those kinds of technical education.

The thrust of the bill as it relates to the 529s and some of the education stuff, there were a couple of quirks that are really for the school, not the individual. I’ll touch on those just because it’s interesting.

Reprioritizing Trades

EB: But the theme of the bill is not making it so four-year-degree-centric in terms of using those funds; it was really putting trades on a level footing and frankly, culturally. My dad was a dentist, and I don’t know if this statistic is still current, so it’s an older statistic. Dentists used to have the highest suicide rate of any medical professionals.

JD: Wow, I didn’t know that.

EB: Because they were “second-class citizens in the medical community.” If you get sick, you look forward to going to the doctor. No one looked forward to going to the dentist. It was really an interesting dynamic.

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I think there’s this shift of trying to reprioritize trades and realize the value that those folks provide to your life. 

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Your AC is never going to be fixed on the internet. Your toilet is never going to be replaced on the internet.

There may be a robot that can weld underwater, I don’t know, but it probably won’t last very long because of the corrosion. That’s going to take people.

JW: Yes, very well said.

EB: There was something interesting; it doesn’t apply to a lot of folks, but going with this theme as it relates to college loans, there was a shift. And we won’t spend a lot of time today on that, I’m sure we will in future segments. But schools that can’t prove that their graduates are getting an average income in a particular program in the school that’s above the national average, are going to start losing funding or losing the ability to get Pell grants or federal aid.

And so if somebody is, the old thing was underwater basket weaving. If your degree is in underwater basket weaving and that pays $35,000 a year, the school’s not going to be able to get federal aid to lend to you because a welder may make $75,000 a year. And so you’re better off going to welding school. So there are some really interesting nuances in this bill.

JD: Yeah. I don’t know how you guys feel about it, but I can remember when I went to school, that was just the next step. And I had friends that went to school with me that had no business going to school.

It’s not to say that they didn’t have something they were interested in, but they should have gone to welding school. Or they should have gone somewhere that their skill set was going to be more empowered to do whatever it was.

It’s just I don’t believe that everybody needs to go to a four-year college or degree. Evan, you’ve got a great slogan where it’s like, “Hey, if you show up on time, you do what you say you’re going to do, you can make a living in this great country,” which is absolutely true.

It’s just one of those things where I don’t think today, especially with the cost associated with some of the colleges, that it’s financially advantageous, depending on what you want to do. And of course, now we’ve got other avenues with HOPE Scholarships and some other things that are much more beneficial than when I was going to college.

Tax on Overtime

EB: So a lot of change there, two of the, I guess, campaign trail promises. And a lot of these changes as it relates to the individual, not the tax rates, not estate taxes or any of that kind of stuff, but a lot of these freebies expire in four years. They take effect this year, but they expire in 2028.

One was no tax on overtime. And of course, you can take up to $12,500 if you’re individual, up to $25,000 if it’s married filing jointly.

And I haven’t seen the statute, but my understanding is it’s not like a Roth thing where you can contribute or your spouse can contribute. I think one of you can have that much overtime. It doesn’t have to be split amongst the spouses, and there’s an income phase-out on that as well.

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But it’s important to note that what’s tax-free on that overtime is the premium on the extra work.

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So the old thing is “I get time and a half for overtime or double time on Sundays or holidays,” or whatever the pay was. The entire overtime, the entire pay you’re getting while working overtime, is not tax-free. It is the premium, either that half or that doubling of your pay is what’s tax-free.

I kidded with Cindy on the third when this passed the House and went to his desk. And then he said he’ll sign it tomorrow, now yesterday on the fourth, with bombers flying over. Love him or hate him, he is a showman, he knows how to work the press.

But anyway, I said, “This is like the lawyer, accountant, financial advisor Full Employment Act.” There’s just particularly on the corporate thing, we’re not even going to dig into that, that’s not the water we swim in.

But corporate attorneys and accountants are just going to be bug-eyed for the next six months poring through this to see how they can take advantage of some of these really squirrely rulings. But the overtime pay and the software programmers, God bless the IRS trying to figure out how to collect this stuff and calculate it.

And the ADPs and the Paychex of the world and whoever, Intuit that makes a lot of tax software for preparers. Those programmers are going to be banging their heads against the wall.

JD: They’re going to be dizzy for a while, yeah.

EB: It’s not a good year to rely on software. You’re going to have to know what you’re looking for, for all of that, so bless all the preparers’ hearts.

Tax-Free Tips

EB: Then tips, what’s the deal on tips? Is that the same number of what’s tax-free?

JW: I’m not sure on tips.

EB: I think it’s almost the same amount, it’s $12,500 if you’re single and up to $25,000.

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The interesting thing on both the overtime premium as well as the tip money is you’re still going to be paying FICA, unemployment, all that kind of stuff. 

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It’s just the tip portion is tax-free, and again, how they’re going to handle that on the W-2.

JD: It says it provides temporary, above-the-line deductions, for tips, $25,000, overtime pay, $12,500. It phases down based on income levels.

EB: Okay.

JD: So yeah.

EB: So tips is $25,000 or just both are $25,000 if it’s a joint tax return? Did I misspeak?

JD: I’m reading this. Yeah, it’s $25,000 if it’s a joint tax return.

EB: Okay, for both.

JD: And $12,500, yeah.

EB: Got it. Okay. Any other big ones that affect us and our clients directly?

The state and local income tax, since we don’t have income tax here, I don’t know. We had the limit of $10,000, now it’s $40,000.

I’m guessing there are some houses in Williamson County that have a property tax over $10,000, so somebody may get a benefit. Leipers Fork or some of those areas, but no big change there, I don’t think.

JD: No, I don’t think so.

EB: They still made permanent basically getting rid of miscellaneous itemized deductions. Charitable giving, I’ll have to flip for that. We’ll go ahead and take a short break here.

I’m going to dig up some of those things on charitable giving because there were some changes there. And then we’ll close out on wrapping up just the initial foray into the Big Beautiful Bill.

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