The dependent care FSA limit jumped from $5,000 to $7,500 in 2026 — a permanent increase under the One Big Beautiful Bill Act. Now that the second year under the new rules is underway, here is where things stand: the $7,500 household limit (or $3,750 for married filing separately) is here to stay, and it is not going up with inflation. That means employers need to make sure their plans are aligned, and employees need to know whether they are taking full advantage.
The DCFSA Limit for 2027: Same Numbers, Permanent Change
The One Big Beautiful Bill Act, signed into law in 2025, permanently amended IRS Code Section 129 to raise the annual contribution limit for dependent care flexible spending accounts. The new limits took effect for tax years beginning after December 31, 2025 — so 2026 was the first year under the updated rules.
Here is what that looks like in concrete numbers for 2027:
- Household limit: $7,500 per year (up from the old $5,000 cap)
- Married filing separately: $3,750 per year (up from the old $2,500 cap)
These amounts are not indexed for inflation, so the limits will remain the same in 2027 and beyond unless Congress acts again. For employers, that means the plan document amendments made for 2026 are still in force — no further changes are needed to the limit itself. For employees, it means the full $7,500 is available again this year.
A dependent care FSA lets employees set aside pre-tax dollars to pay for qualifying care expenses — daycare, preschool, after-school programs, summer day camp, and eldercare for a dependent who cannot care for themselves. Contributions come out of each paycheck before federal income tax and Social Security tax are calculated, which lowers the employee’s taxable income.
At the $7,500 limit, a family in the 22% marginal tax bracket saves roughly $1,650 in annual taxes compared to paying for care with after-tax dollars. Higher earners see even more.
What Employers Should Check for 2027
If you amended your plan document for 2026, the $7,500 limit is already reflected in your plan. But there are a few things worth reviewing as you head into 2027 open enrollment:
Confirm your plan document is current. The amendment adopted for 2026 should still cover 2027, since the limit is permanent. However, if your plan year does not align with the calendar year, or if your administrator made any interim changes, double-check that the plan language still reflects the correct $7,500 / $3,750 limits.
Watch nondiscrimination testing. Nondiscrimination testing rules under Section 129 still apply. Employers must ensure the plan passes the eligibility test, the benefits and contributions test, the 5% owner test, and the 55% average benefits test. The higher limit can make the 55% average benefits test harder to pass — especially if highly compensated employees are contributing at or near the max while non-HCEs contribute less. If your plan failed or came close to failing in 2026, that is worth a conversation before 2027 open enrollment.
Communicate the benefit to employees. Many employees still do not know the limit went up. A short email, a benefits fair handout, or a quick FAQ on your intranet can make a real difference. The message is simple: you can set aside up to $7,500 pre-tax for dependent care in 2027, and the IRS has confirmed no new forms or filing requirements come with the higher cap.
Evaluate how the DCFSA fits your benefits strategy. With the higher ceiling now permanent, the dependent care FSA is a more competitive benefit than it was two years ago — especially for employers competing for talent against larger organizations that already offer generous dependent care support. If you are evaluating voluntary benefits or looking for ways to strengthen your employee value proposition, the DCFSA is worth a conversation.
What Employees Should Know for 2027
For employees who already use a dependent care FSA, 2027 is the second year under the higher limit — and a good time to make sure your election reflects the full $7,500 if your family’s care expenses support it.
To qualify, a dependent must be under age 13 when care is provided, or be a spouse or other dependent who is physically or mentally incapable of self-care. Eligible expenses include daycare, after-school care, preschool, nursery school, summer day camp, and eldercare services for a qualifying dependent.
One important note: unused DCFSA funds do not carry over year to year. Employees should estimate their care expenses carefully and avoid over-contributing, since forfeited funds are lost.
For families who were contributing $5,000 under the old limit, bumping up to $7,500 means an extra $2,500 sheltered from taxes each year. That is real money — and it costs nothing beyond electing the higher amount during open enrollment.
How Trek Insurance Solutions Can Help
Whether you are an employer reviewing your benefits program for 2027 or an employee trying to figure out how the DCFSA fits into your financial picture, Trek Insurance Solutions can help. Our team works with employers to design and administer employee benefit programs that are compliant, competitive, and genuinely useful to the people they cover.
Reach out to learn more about setting up or optimizing a dependent care FSA for 2027. For more information, visit us at trekis.net or call 888-960-0442.