Dependent Care FSA Limit 2026: $7,500 per Household (Employer Guide)

What Is the Dependent Care FSA Limit for 2026?

The dependent care FSA limit for 2026 is $7,500 per household, or $3,750 for a married person filing separately. The 2025 tax law (the One Big Beautiful Bill Act) raised it from $5,000. The limit is not indexed for inflation.

Because the limit is set in the law, it stays at $7,500 in 2027 unless Congress changes it. The health FSA limit is different: the IRS adjusts it each year.

The IRS has not yet announced the 2027 health FSA limit. We will update this page when it does.

What Is a Dependent Care Assistance Program (DCAP)?

A dependent care assistance program (DCAP) is an employer plan under Internal Revenue Code Section 129. It lets employees pay for dependent care with pre-tax money. A dependent care FSA, offered through a Section 125 cafeteria plan, is the most common type.

The money must pay for care that lets the employee (and a spouse, if married) work or look for work. The care must be for a qualifying person:

• A child under age 13 who is the employee’s dependent
• A spouse or dependent of any age who cannot care for himself or herself and lives with the employee for more than half the year

Daycare, preschool, before- and after-school care, summer day camp and adult day care usually qualify. Overnight camp and school tuition from kindergarten up do not.

The tax-free amount also cannot be more than the earned income of the employee or the spouse, whichever is lower. The employer reports the amount in box 10 of the employee’s Form W-2.

What Does a DCAP Save the Employer?

Dependent care FSA contributions are free of Social Security and Medicare tax, so the employer saves 7.65% in FICA tax on every dollar employees put in. At the $7,500 limit, that is about $574 per participating employee per year.

Example: A home health agency has 60 employees. 8 of them pay for child care and elect an average of $5,000 each.

• Pre-tax contributions: 8 × $5,000 = $40,000 a year
• Employer FICA savings: $40,000 × 7.65% = about $3,060 a year

The savings are real, but they come from a small group. The other 52 employees add nothing, because they have no dependent care costs to run through the plan.

What Must Employers Do Now That the Limit Is $7,500?

A higher limit does not apply to your plan on its own. If your plan document or payroll setup says $5,000, update both. Then check nondiscrimination testing, because a higher limit makes the tests harder to pass.

• Amend the plan document if it states a $5,000 maximum, or choose a lower limit on purpose.
• Update payroll. Change the annual maximum in your payroll system so deductions do not stop at $5,000.
• Update enrollment materials. Tell employees the new limit, and that it is per household, not per employee.
• Explain the credit trade-off. Dollars excluded through a DCAP reduce the expenses an employee can use for the dependent care tax credit on Form 2441. Employees cannot use the same dollars twice.

Nondiscrimination Testing

A DCAP must not favor highly compensated employees (HCEs). For 2026, an HCE is a 5% owner, or an employee paid more than $160,000 in the prior year. The plan must pass four tests, including:

• The 55% average benefits test. The average benefit for non-HCEs must be at least 55% of the average benefit for HCEs. This is the test DCAPs fail most often.
• The 25% owner test. Owners of more than 5% and their families cannot receive more than 25% of all DCAP benefits.

In August 2026, the IRS proposed the first regulations for these tests. They count only employees who actually participate in the 55% test, and they let an employer fix a failure after year-end by adding the excess benefit to the HCEs’ W-2 wages. Employers can rely on the proposed rules now. Ask your plan administrator to run the tests before the plan year ends.

How Does a DCAP Compare With a Full Section 125 Savings Plan?

A DCAP is one Section 125 benefit, and it helps only employees who pay for child or adult care. A full Section 125 savings plan includes every employee, so the payroll tax savings apply across the whole workforce.

In industries with many hourly workers, such as home health care, a DCAP often reaches fewer than 1 in 5 employees. A full Section 125 savings plan reaches all of them:

• Employer savings: most employers save $650–$850 per employee per year.
• Employee pay: take-home pay typically rises about 4–6%.
• New benefits: unlimited virtual care with no copay, $0-copay generic prescriptions and hospital indemnity cash benefits.
• Cost: no setup fee and no minimum contract. The per-employee monthly fee is paid from the tax savings.

Our program requires at least 50 employees and works alongside your existing health insurance. It is not available to businesses located only in certain states; see state availability. For the full picture of plan types, read our Section 125 plan guide for employers, or compare a premium only plan with a full plan.

Already offer a DCAP or a health FSA? The program works alongside an existing dependent care FSA or health FSA. You can also estimate your savings first.

Frequently Asked Questions

What is the dependent care FSA limit for 2026?

The limit is $7,500 per household, or $3,750 for a married person filing separately. The 2025 tax law raised it from $5,000, starting in 2026.

Will the dependent care FSA limit go up in 2027?

Not automatically. The $7,500 limit is set in the law and is not indexed for inflation. It stays $7,500 in 2027 unless Congress changes it.

Is the $7,500 limit per employee or per household?

Per household. If both spouses have a dependent care FSA through work, their combined tax-free amount is still $7,500 for the year.

Does a dependent care FSA save the employer money?

Yes. Contributions are free of Social Security and Medicare tax, so the employer saves 7.65% on each dollar. At the $7,500 limit, that is about $574 per participating employee per year.

Do we have to offer the full $7,500?

No. $7,500 is the maximum. An employer can set a lower plan limit, for example to help the plan pass nondiscrimination testing. The plan document must state the limit you choose.

This article is general information, not tax or legal advice. Talk to your tax advisor about your situation.

Sources

The rules and figures on this page come from these sources.

• Dependent care assistance limit: 26 U.S.C. § 129
• Dependent care rules: IRS Publication 503
• Dependent care in a cafeteria plan: IRS Publication 15-B
• Cafeteria plans: 26 U.S.C. § 125