The Dependent Care FSA Finally Went Up. Tell Your Working Parents.
The dependent care FSA limit moved from $5,000 to $7,500 for 2026, the first permanent increase since 1986. Steven Hinton on why most employees still do not know, and how to fix that before they miss it.
The dependent care FSA limit was set at $5,000 in 1986. I was not working in benefits in 1986. Neither were most of the parents who use the account. For 2026, the One Big Beautiful Bill Act finally raised it to $7,500, and in the enrollment meetings I have run since the change, almost nobody in the room knew.
Why it matters more than it sounds
Nearly every parent I talk to in an enrollment meeting spends more than $5,000 a year on child care, so the account was capped far below what families actually pay. Moving the limit to $7,500 means an employee in the 22% bracket who maxes the account saves roughly $550 more in federal income tax than they did last year, before payroll taxes, which the employer also saves on. That is real money for a working parent and it costs the company nothing beyond administration.
What you have to do
Two things. If your Section 125 plan document specifies the $5,000 figure rather than referencing the statutory limit, it needs an amendment before employees can elect above $5,000. Check with your plan administrator. Then communicate it. A single sentence in the open enrollment guide is not enough when the number has not moved in forty years. Send a standalone note to everyone with a dependent on the plan, and say the number out loud in enrollment meetings.
A few details
The $7,500 is per household, not per spouse, so a married couple filing jointly shares it. Married filing separately gets $3,750. The nondiscrimination testing for dependent care plans did not change, so if your highly compensated employees are the only ones using the account, the higher limit can make that test harder to pass. Run it early.
The bigger picture
The same law made the Section 127 student loan repayment benefit of $5,250 permanent and expanded the employer child care credit. If your workforce skews toward people with young kids or recent degrees, there is more here than one FSA change. I am happy to walk through what applies to your group.
If you need a plan amendment or a short employee notice, we have templates for both. Call us.
This article is for general informational and educational purposes only and does not constitute insurance, legal, tax, or financial advice. For guidance specific to your organization, talk with an FBP advisor.
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