Jim Lantieri, Guest Writer and Summer Intern | 2.8 Minute Read
The passing of the One Big Beautiful Bill Act (OBBBA) has resulted in many sweeping changes to long-standing benefits, not the least of which is the dependent care FSA limit. Beginning January 1, 2026, the annual contribution limit for dependent care FSAs will increase for the first time in decades, rising from $5,000 to $7,500 for single filers and married couples filing jointly, and from $2500 to $3750 for married individuals filing separately.
For employers, this is both a compliance update and an engagement opportunity; these changes bring forth a chance to update plan documents and communicate changes ahead of open enrollment, while highlighting the value of dependent care FSAs in supporting working parents and caregivers.
Why the Increase Matters
The dependent care FSA limit has been essentially unchanged since 1986, aside from a temporary pandemic adjustment. While HSAs and medical FSA limits are competitive with inflation, dependent care FSAs are static, hurting employers and employees alike.
While the OBBB’s long-awaited increase may not fully address the high cost of child and elder care, it brings the limit closer to modern costs. This allows employees to set aside more pre-tax dollars for eligible care expenses like day care, pre-K programs, summer camps, nannies, and elder care. For working families, this change will provide meaningful tax savings and budget relief.
The Employer Opportunity
Dependent care FSAs remain a powerful recruitment and retention tool, particularly for employers who may not offer flexible or remote work arrangements.
This side effect of modernizing the FSA limit gives employers a clear opportunity to:
- Reintroduce dependent care FSAs to employees who may not have considered enrolling before.
- Educate employees about eligible expenses and the increased contribution limit.
- Position the benefit as part of a larger family support and retention strategy.
As discussed in Adapting to the Unique Needs of Employees at Different Life Stages, dependent care benefits resonate most strongly with employees in caregiving phases of life.
Employers’ Next Steps
The OBBB increase will require significant updates before the 2026 plan year:
- Plan Amendments: Work with your FSA administrator to update plan documents to reflect the new limits.
- Communication Campaigns: Begin employee outreach during the 2025 open enrollment, clearly explaining the new limits, eligible expenses, and enrollment process.
- Consider Plan Design Adjustments: Employers are not required to allow the full federal maximum contribution; some may opt for a lower cap due to budget constraints.
- Understand Nondiscrimination Testing: The heightened cap may favor higher-salaried employees more than others; targeted communications or contribution matching can help balance participation.
According to the Internal Revenue Code, dependent care FSAs cannot favor highly compensated employees, and the higher limit may exacerbate utilization differences. Proactive preparation will position your organization to maximize the benefits of the increased limit while minimizing these administrative and compliance risks.
2026 and Beyond
The OBBB’s dependent care FSA limit increase is a rare and significant update to a long-standing thorn in employers’ sides. Those who act early can position themselves to comply with new rules, maximize employee engagement, and demonstrate commitment to their support of working families.
BSI will continue to monitor implementation timelines, provide guidance, and assist in clients’ update of plan material and employee communications to make the most of this change.