Exciting news! For the first time ever since the Dependent Care Flexible Spending Account was established in 1986, the plan is finally experiencing an allowable annual contribution limit increase, coming in 2026!
A Dependent Care Flexible Spending Account (DCFSA) is a valuable benefit that can help enrolled individuals save money on eligible expenses related to the supervision of an eligible dependent while the employee goes to work. Common eligible examples include preschool, daycare, before- and after-school programs, day camps, and more!
Introduced in July 2025, the One Big Beautiful Bill Act (OBBBA) allows an increase of the maximum annual contribution limit for DCFSAs to $7,500 (or $3,750 for married individuals filing separately). For nearly four decades, this annual limit was previously set at $5,000 (or $2,500 for married individuals filing separately). The jump will take effect for taxable years starting January 1, 2026, for employers who choose to utilize the new maximum allowed under their plan administration.
As per-pay deductions are taken from the enrollee’s gross pay before taxes are taken out, this reduces their net (taxable income). This means the enrollee will pay less in federal, state (in most states), and Social Security/Medicare taxes. Without a pre-tax plan enrollment, the individual would be paying these expenses out of pocket from funds that have already taken the tax hit before making it to them, with a higher taxable income total when tax season rolls around.
Depending on an individual’s income and tax bracket, the plan provides potential for substantial savings on taxes each year – we strongly advise that anyone interested in the plan speaks with a tax professional to see how a DCFSA enrollment may personally benefit them, given their specific financial situation.
Please reach out to PS Administrators if you are interested in offering your employees this amazing opportunity for savings on expenses that they’re already paying! Our team is always happy to discuss how this or any other plan will benefit your organization!
