On July 4, 2025, the Trump administration signed into law the final version of H.R. 1- One Big Beautiful Bill (OBBB). The OBBB includes various changes that affect employee benefits, including an optional increase to the annual amount an employer can allow an employee to contribute on a tax-favored basis to their dependent care assistance program/flexible spending account (FSA).
For plan years starting on or after January 1, 2026, the maximum dependent care FSA contribution limit will increase from $5,000 to $7,500 a year (and from $2,500 to $3,750 per year if married and filing taxes separately). This new dependent care FSA contribution limit is not indexed for inflation.
Plan sponsors should determine whether they want to increase their dependent care FSA contribution limit for 2026 and if doing so creates any implications for nondiscrimination testing. If a plan sponsor wants to offer this increased contribution limit in 2026, they should make applicable revisions to their cafeteria plan document and benefit materials (e.g., notify employees of the new increased contribution limit in open enrollment communications).
If you have questions about this optional increase to the dependent care FSA contribution limit, please contact a member of the Faegre Drinker Benefits & Executive Compensation team.
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