Fringe and Benefits Plan Updates for 2026: What Los Angeles Employers and Professionals Need to Know

As 2026 approaches, several important updates from the federal budget reconciliation bill (HR 1: One Big Beautiful Bill Act) will affect employee benefit plans, reimbursement programs, and health-related arrangements.

Whether you’re a Los Angeles employer, a medical professional, or a self-employed business owner, these changes can impact how you structure your benefits, payroll deductions, and tax planning.

At Velin & Associates, Inc., our Los Angeles CPAs help businesses and professionals stay compliant with evolving tax laws — and prepare for what’s next. Here’s what you should know about the latest updates taking effect in 2026.

1. Bicycle Commuter Reimbursement Exclusion Permanently Removed

The tax-free reimbursement for qualified bicycle commuting expenses, which had been suspended from 2018 through 2025, will remain excluded indefinitely.

That means starting in 2026, employers cannot reinstate bicycle commuter benefits as a tax-free fringe benefit.

If your company benefits plan or policy still references the temporary exclusion period, it’s time to update your fringe benefits documentation to stay compliant with current IRS rules.

💡 CPA Tip: Employers should review all fringe benefit plan documents to ensure they reflect the permanent exclusion and avoid offering non-compliant benefits that could create tax reporting issues.

2. Dependent Care Flexible Spending Account (DCFSA) Limit Increases

Beginning with plan years starting in 2026, the Dependent Care Flexible Spending Account (DCFSA) contribution limit will increase to $7,500.

This adjustment provides more room for employees to set aside pre-tax dollars to cover eligible dependent care expenses such as daycare, preschool, or after-school programs.

Employers can choose whether to adopt the higher limit — it’s optional, not automatic.

If you offer a DCFSA and wish to take advantage of the increased contribution cap, make sure to:

• Update your cafeteria plan documents,
• Revise benefits communication materials, and
• Notify employees before the start of your 2026 plan year.

💡 CPA Tip: Increasing the DCFSA limit can be a valuable recruiting and retention tool, especially for employers competing for top talent in Los Angeles.

3. Direct Primary Care Arrangements and Health Savings Accounts (HSAs)

Starting January 1, 2026, certain Direct Primary Care (DPC) service arrangements will no longer disqualify employees from contributing to a Health Savings Account (HSA).

Under the new rule:

• Employees can use their HSA to pay for qualified DPC services, and
• They remain eligible to make HSA contributions as long as the DPC fee meets specific IRS criteria — such as a monthly cost of $150 or less for an individual.

💡 Why This Matters:
This change is particularly beneficial for self-employed professionals, doctors, and small business owners in Los Angeles who prefer direct care models over traditional insurance. It provides greater flexibility in healthcare spending and tax savings.

What Employers and Professionals Should Do Before 2026

✔ Review and amend all fringe benefit and cafeteria plan documents to reflect the new rules.
✔ Decide whether to adopt the higher DCFSA contribution limit and update employee communications.
✔ If you offer or use Direct Primary Care services, ensure your plan meets the new IRS qualifications to maintain HSA eligibility.
✔ Consult your CPA or benefits advisor before your 2026 plan year begins to ensure compliance and maximize available tax advantages.

Velin & Associates, Inc. Can Help

Our team of experienced Los Angeles CPAs helps employers, doctors, dentists, and professionals navigate complex IRS benefit regulations and stay compliant with every law change.

We provide guidance on:

• Fringe benefits and employee reimbursement plans
• Health and dependent care account administration
• Business tax planning and compliance for 2026
• Strategic payroll and benefits coordination

For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org

Book a year-end consultation today to ensure your 2026 benefits and tax strategies are fully compliant and optimized.

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