The recently enacted “One Big Beautiful Bill” Act (H.R. 1) includes a long-awaited update for working families: a permanent increase in the annual contribution limit for dependent care assistance flexible spending accounts (DCAPs). Beginning in tax years after December 31, 2025, the annual limit on dependent care FSA contributions will rise from $5,000 to $7,500 per household. For taxpayers who are married filing separately, the limit increases from $2,500 to $3,750.
This is the first permanent adjustment to the cap since it was set in 1986, aside from a brief increase under the American Rescue Plan Act of 2021. While the new limits are not indexed for inflation, they are expected to offer meaningful savings to families by reducing the out-of-pocket cost of childcare.
To accommodate the higher limits, employers offering DCAPs will need to amend plan documents, adjust payroll systems, and communicate the changes to employees ahead of the 2026 tax year. These updates will ensure compliance and help participants take full advantage of the increased contribution thresholds.
MedBen clients with questions regarding the DCAP limit increase are welcome to contact Director of Administration Sharon A. Mills at 800-423-3151, Ext. 438 or smills@medben.com.