This week: The One Big Beautiful Bill Act just gave working parents a major win. Starting in 2026, the annual Dependent Care Account limit jumps from $5,000 to $7,500 — the first big increase in decades. This 50% boost means bigger tax savings for employees and a no-cost, no-risk benefit for employers.
A Rare but Significant Upgrade
For the first time in years, the Dependent Care Flexible Spending Account (FSA) is getting a major upgrade. Thanks to the One Big Beautiful Bill Act, the annual contribution limit is jumping from $5,000 to $7,500 in 2026 — a 50% increase in one year.
That’s a big deal for working parents, since this account helps cover one of the most expensive parts of raising kids: child care. And unlike most benefit limits that inch up gradually each year, this one just leapt forward.
With child care costs continuing to rise — and more employees returning to the office after years of hybrid or remote work — this increase couldn’t come at a better time. For many working parents, reliable child care isn’t optional, and this higher limit will help offset some of those costs with meaningful tax savings.
What Is a Dependent Care Account?
(and how does It differ from an FSA?)
A Dependent Care Account is technically a type of flexible spending account, but it’s governed by Section 129 of the tax code (not Section 125, which applies to health FSAs).
Employees can set aside pre-tax money from their paychecks to cover things like:
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Daycare or preschool for children under 13
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Before- and after-school programs
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Summer day camps (but not overnight camps)
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Adult day care for dependent parents or relatives
Unlike health FSAs, employees can only access the funds after they’ve been contributed through payroll. That means there’s no risk to employers — reimbursements only happen once the money’s in the account.
The Big 2026 Change
The new $7,500 annual limit is the first real boost in decades, aside from a temporary increase to $10,500 back in 2021 during the COVID relief period.
Under the new law:
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The household limit for individuals or joint filers rises from $5,000 to $7,500.
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Married couples filing separately each get $3,750.
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This is a permanent change unless Congress acts again.
For an account that usually sits frozen for years at a time, this is a massive leap — especially compared to Health FSAs or HSAs, which tend to grow by just $100 or $200 each year.
Why It Matters
A 50% Bigger Tax Break
Because dependent care expenses are so common — and expensive — most employees who use this benefit already max out the old $5,000 limit. The new $7,500 cap means they can now shelter another $2,500 from taxes.
If you spend that much anyway on daycare or after-school care (and most parents easily do), this is like getting a tax break on 50% more of what you already pay.
Real-World Example
How Much You Actually Save
Here’s what the math looks like for someone earning between $50,000 and $100,000 a year, which puts them in roughly the 22% federal income tax bracket, plus 7.65% in FICA taxes:
| Contribution | Federal Income Tax Savings (22%) | FICA Tax Savings (7.65%) | Total Annual Savings |
|---|---|---|---|
| $5,000 (old limit) |
$1,100 | $383 | $1,483 |
| $7,500 (new limit) |
$1,650 | $574 | $2,224 |
That’s an extra $741 back in employees’ pockets each year just from the higher limit.
To put that in perspective: for someone earning $50,000 annually, that’s roughly a 1.5% raise — without their employer spending an extra dime.
And this “raise” comes entirely from better tax efficiency — not higher wages.
Why Employers Should Care
(and Why There’s No Risk)
From an employer’s standpoint, this is a rare win-win:
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No out-of-pocket cost. The plan is funded entirely by employee payroll deductions.
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No cash-flow risk. Unlike FSAs, employees can only claim what they’ve already contributed.
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FICA savings. Employers save roughly 7.65% on every dollar employees contribute.
Even better, most third-party administrators (TPAs) that handle Health FSAs already support Dependent Care Accounts at no additional cost. If you already have an FSA in place, your administrator might just need to toggle it on.
Ask your FSA administrator if your company’s plan already supports Dependent Care Accounts — many can activate this feature at no cost.
Why More Employers Don’t Offer It
(and Why That Should Change)
Many employers simply don’t realize this option exists — or they assume it’s complex or expensive to manage. In reality, it’s one of the simplest, lowest-maintenance benefits available.
With the new $7,500 limit, participation is almost guaranteed to climb. If you’re looking for a low-cost, high-impact way to support working parents (and attract new ones), now’s the time to add this benefit.
What Employees Need to Know
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Eligible expenses include daycare, preschool, before/after-school care, and adult day care.
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Funds must be used for dependents under age 13 (or disabled adults).
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It’s a “use-it-or-lose-it” account — unused funds are forfeited at year-end.
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You can’t double-dip by also claiming the child care tax credit for the same expenses, so compare both options.
Key Takeaways
✅ Annual limit increases from $5,000 → $7,500 in 2026 (50% jump)
✅ Up to $2,200 in annual tax savings for many employees
✅ No cost, no risk for employers
✅ Easy add-on for companies already offering FSAs
✅ Perfect time to implement before 2026 open enrollment
Between higher FSA, HSA, and now Dependent Care Account limits, 2026 is shaping up to be one of the most generous years yet for pre-tax benefits — making it a perfect time for employers to review their full Section 125 offerings.