Since 1986, the dependent care FSA limit has remained fixed at $5,000, with no adjustments for inflation. The OBBB brings the first meaningful update in four decades, raising the limit to $7,500 (or $3,750 for married couples filing separately) for plan years starting in 2026. While the new cap is still not indexed for inflation and falls short of prior legislative proposals such as the Build Back Better bill, it still represents a meaningful improvement to the current limit.
Unfortunately, many employers struggle to provide dependent care FSAs with sufficient participation to pass the burdensome 55% Average Benefits Test, causing many highly paid employees to be excluded from the tax benefits. This increased limit may actually make it even harder to pass the test.
Employer Action Items
Prepare for the increased dependent care FSA limit of $7,500 (or $3,750 for married couples filing separately) effective in 2026 by working with your FSA administrator to amend plan documents and update open enrollment materials, as well as modeling nondiscrimination testing to determine the impact on the 55% Average Benefits Test.