Dependent Care FSA Limit 2026: The $7,500 Increase Employers Need to Know

The dependent care FSA limit jumps to $7,500 in 2026 under the One Big Beautiful Bill Act, the first permanent increase since 1986. Here is what employers must do before the plan amendment deadline.

Quick Answer (as of 2026): The dependent care FSA limit rose to $7,500 per year in 2026, up from $5,000, under the One Big Beautiful Bill Act (OBBBA). It is the first permanent increase to this limit since 1986. Employers are not required to adopt the higher amount, but any Section 125 plan that does must be amended and may face harder nondiscrimination testing.

The dependent care flexible spending account limit is $7,500 per year for 2026, up from $5,000, following passage of the One Big Beautiful Bill Act. For a married couple filing separately, the new limit is $3,750 per spouse. This is the first permanent increase to the dependent care FSA cap since it was set at $5,000 in 1986, and it changes how much a family can set aside pre-tax for child care, before-and-after-school programs, and eldercare.

This guide explains what changed, whether your business has to adopt the new limit, and what the higher cap means for your Section 125 plan's compliance testing.

What Is the Dependent Care FSA Limit for 2026?

The dependent care FSA limit for 2026 is $7,500 for a single filer or a married couple filing jointly, and $3,750 for a married person filing separately. That is a $2,500 increase over the $5,000 limit that applied every year from 1986 through 2025, aside from a temporary pandemic-era adjustment. The dependent care FSA, sometimes called a Dependent Care Assistance Program (DCAP), is a separate account from a healthcare FSA and is typically offered through the same Section 125 cafeteria plan. Funds can reimburse child care, preschool, before-and-after-school care, day camp, and eldercare costs that let an employee and their spouse work or look for work.

Why Did the Dependent Care FSA Limit Increase in 2026?

Congress raised the dependent care FSA limit through the One Big Beautiful Bill Act to give working families more pre-tax room for rising child care costs. The prior $5,000 cap had not changed in nearly 40 years, even as average child care costs climbed well past that figure in most states. Alongside the FSA increase, OBBBA also raised the Child and Dependent Care Tax Credit to 50% of eligible expenses for families with adjusted gross income under $43,000, phasing down above that threshold, up from a prior 35% rate. A family can use both the FSA and the tax credit, but not on the same dollar of expense.

Summit Health Benefits builds and administers Section 125 plans with dependent care FSA options. We model whether the new $7,500 limit fits your workforce and run your FICA savings before you commit to anything. Get a free plan review.

Do Employers Have to Adopt the New $7,500 Limit?

No. Raising the dependent care FSA limit to $7,500 is optional for employers, not automatic. A Section 125 plan document sets its own maximum election, and that maximum stays at whatever level the employer last adopted until the plan is formally amended. An employer can choose to keep the old $5,000 cap, move partway to something like $6,000, or adopt the full $7,500 allowed under OBBBA. The decision usually comes down to two factors: whether the workforce has enough employees earning above the highly compensated employee (HCE) threshold to make nondiscrimination testing harder, and whether payroll and plan documents can be updated in time for open enrollment.

What Is the Deadline to Amend a Section 125 Plan for the New Limit?

An employer that wants employees to use the new $7,500 limit starting January 1, 2026 must formally amend its Section 125 plan document, and that amendment can generally be adopted retroactively by the end of the 2026 plan year. That means a calendar-year plan has until December 31, 2026 to sign the amendment, even if the higher limit was already communicated to employees and used operationally earlier in the year. Waiting until the deadline is not a best practice. Payroll systems, open enrollment materials, and the plan's summary plan description all need to reflect the correct limit before employees make their elections, which is easier to manage as part of a normal <a href="/blog/section-125-cafeteria-plan-2026-guide">Section 125 plan</a> setup or renewal than as a late-year correction.

Does the Higher Dependent Care FSA Limit Make Nondiscrimination Testing Harder?

It can. A dependent care FSA is tested under Internal Revenue Code Section 129, which requires the average benefit received by non-highly compensated employees to equal at least 55% of the average benefit received by highly compensated employees, a rule known as the 55% Average Benefits Test. For 2026 testing, an employee who earned more than $160,000 in 2025 is generally treated as an HCE, per IRS guidance. Highly compensated employees are more likely to have the income available to contribute the full $7,500, while lower-paid employees may only be able to afford smaller elections, which can widen the gap the 55% test measures. Employers with a workforce concentrated at higher salary bands should run the test under the new limit before finalizing open enrollment, not after.

Can Employees Use Both a Dependent Care FSA and the Child and Dependent Care Tax Credit?

Yes, but not on the same dollars. An employee can contribute up to $7,500 pre-tax to a dependent care FSA and separately claim the Child and Dependent Care Tax Credit on qualifying expenses that exceed what the FSA already reimbursed. For most families, running expenses through the pre-tax FSA first produces a larger benefit than the tax credit alone, because the FSA reduces both federal income tax and FICA, while the tax credit only reduces federal income tax owed at tax filing time. A tax advisor can help an individual employee model which combination fits their income and expenses.

Does a Dependent Care FSA Save Employers Money the Same Way a Healthcare FSA Does?

Yes. Every dollar an employee elects into a dependent care FSA through a Section 125 plan is removed from taxable wages before payroll taxes are calculated, which lowers the employer's 7.65% FICA obligation on that dollar the same way it does for a healthcare FSA or HSA. Our <a href="/blog/maximizing-fica-tax-savings">FICA tax savings guide</a> walks through the full math, but the short version applies here too. Summit Health Benefits charges $35 per enrolled employee per month to administer a Section 125 plan. Employer FICA recapture on typical pre-tax elections runs $91 to $136 per enrolled employee per month, and employee take-home pay increases $70 to $110 per month once the plan is active. An employee who elects the full new $7,500 dependent care FSA limit adds an extra $573.75 in annual employer FICA recapture on that election alone (7.65% of $7,500), on top of whatever the employee elects for medical benefits.

What Expenses Qualify for a Dependent Care FSA?

A dependent care FSA reimburses care costs for a child under age 13, a spouse, or another dependent who cannot care for themselves, as long as the care allows the employee and their spouse to work or actively look for work. Qualifying expenses include licensed daycare centers, preschool tuition tied to care rather than education, before-and-after-school programs, summer day camp, and adult day care for an eligible dependent. Overnight camps, a spouse's care costs while the spouse is not working or looking for work, and school tuition for kindergarten and above generally do not qualify. Employees comparing this account against a healthcare FSA or HSA can see the full side-by-side breakdown in our <a href="/blog/hsa-vs-fsa-2026">HSA vs FSA 2026 guide</a>.

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Frequently Asked Questions

What is the dependent care FSA limit for 2026?
The dependent care FSA limit for 2026 is $7,500 for a single filer or a married couple filing jointly, and $3,750 for a married person filing separately. This is an increase from the $5,000 limit that applied from 1986 through 2025 under the One Big Beautiful Bill Act.
Is the $7,500 dependent care FSA limit automatic for every employer?
No. The higher limit is optional, and an employer's Section 125 plan document controls the actual maximum election allowed. Employers must formally amend their plan to adopt the new $7,500 cap, and can choose to keep the prior limit or adopt a different amount instead.
When do employers need to amend their plan for the new dependent care FSA limit?
A calendar-year Section 125 plan generally has until December 31, 2026 to formally sign the amendment adopting the new limit, even if the higher amount was already communicated to employees earlier in the year. Updating payroll systems and plan documents before open enrollment avoids a late-year scramble.
Does the higher dependent care FSA limit affect nondiscrimination testing?
It can. Dependent care FSAs are tested under IRC Section 129's 55% Average Benefits Test, which compares the average benefit for non-highly compensated employees against highly compensated employees. For 2026 testing, an employee who earned more than $160,000 in 2025 is generally an HCE, and a higher limit can widen the gap the test measures if HCEs contribute more.
Can an employee use a dependent care FSA and the dependent care tax credit together?
Yes, but not on the same dollars of expense. An employee can contribute up to $7,500 pre-tax to the FSA and separately claim the Child and Dependent Care Tax Credit on any qualifying costs above what the FSA already reimbursed. Running costs through the pre-tax FSA first usually produces the larger combined benefit.
Does a dependent care FSA save the employer money?
Yes. Every pre-tax dollar an employee elects into a dependent care FSA through a Section 125 plan lowers the employer's FICA obligation by 7.65% on that dollar. An employee electing the full new $7,500 limit adds roughly $573.75 in annual employer FICA recapture on that election alone.
What expenses qualify for a dependent care FSA?
Qualifying expenses include licensed daycare, preschool tuition tied to care, before-and-after-school programs, summer day camp, and adult day care for an eligible dependent, as long as the care allows the employee and spouse to work or look for work. Overnight camp and kindergarten-and-above school tuition generally do not qualify.
Does raising the dependent care FSA limit cost the employer anything?
Adopting the higher limit itself has no direct cost beyond the plan amendment and any additional nondiscrimination testing review. Employers already pay a flat per-employee administration fee for their Section 125 plan, and the FICA savings on dependent care elections typically exceed that fee, the same way it does for medical and healthcare FSA elections.
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Sources: The One Big Beautiful Bill Act provisions raising the 2026 dependent care FSA limit to $7,500 and enhancing the Child and Dependent Care Tax Credit; Internal Revenue Service (IRS) guidance on 2026 highly compensated employee thresholds and Section 129 nondiscrimination testing; and Summit Health Benefits' published administration fee and FICA recapture figures. For related reading, see our guides on <a href="/blog/section-125-cafeteria-plan-2026-guide">Section 125 cafeteria plans</a>, <a href="/blog/maximizing-fica-tax-savings">maximizing FICA tax savings</a>, <a href="/blog/hsa-vs-fsa-2026">HSA vs FSA in 2026</a>, and <a href="/blog/open-enrollment-employer-guide">preparing for open enrollment</a>.