The dependent care limit went up in 2026. Most plans have not caught up.
Dependent care FSAs and family or emergency assistance accounts are where a benefits package meets the rest of an employee’s life. We set them up so the limits, eligibility rules and testing are right, and so employees can see them next to their other accounts on our platform.
A higher limit only helps employees if the plan document allows it.
Beginning in 2026 the federal exclusion for dependent care assistance is $7,500 a year, or $3,750 for a married employee filing separately. The limit your plan applies is whatever your plan document says, so the increase has to be adopted, not assumed.
Who Counts as a Dependent
Care qualifies for a child under age 13, or for a spouse or dependent who cannot care for themselves. Summer camp for an eleven-year-old qualifies; the same camp at thirteen does not, which is why elections should be reviewed as children age.
Care So the Employee Can Work
Expenses must let the employee, and a spouse if married, work or look for work. Overnight camps, tuition for school and care paid to the employee’s own child under 19 are excluded, so the eligible expense list matters more here than anywhere else.
Paid as Incurred
Unlike a health FSA, a dependent care account can generally reimburse only what has been contributed so far. Employees who pay a large deposit up front need to know that before enrollment, not at their first claim. Clear dependent care FSA timing avoids early-year surprises. Our free dependent care FSA savings calculator turns this into dollars for your plan.
The Tax Credit Trade-Off
Money excluded through the account reduces the expenses an employee can use for the federal child and dependent care credit. Which route saves more depends on the household, so we explain the trade-off and leave the conclusion to the employee’s tax preparer.
Dependent care accounts fail testing when the wrong people use them.
A dependent care program must be a separate written plan that does not favor highly compensated employees, and owners have a separate concentration limit. Because participation is voluntary, a plan can pass one year and fail the next without any design change.
Why Plans Fail
Higher-paid employees tend to elect larger amounts, and lower-paid employees often do not enroll at all. The higher 2026 limit widens that gap, so plans that passed easily before may not. Early testing protects dependent care FSA plans. Broader enrollment is the lasting fix.
Test Early
We run a test on elections at open enrollment, not after year-end, because a mid-year correction is a reduced election while a failed year-end test is taxable income for the employees affected. Early testing turns a dependent care failure into a fix.
Fix the Participation
The durable fix is broader enrollment, not smaller elections. Clear communication about what the account covers is usually the cheapest way to pass. Broader participation is the lasting fix for dependent care FSA testing, and it helps the employees who need it most.
Help for a family crisis is generous. Whether it is tax-free is a separate question.
Employers increasingly want to help with emergencies, caregiving and family costs that no traditional benefit covers. The structure decides the tax result, so we settle it before the first payment.
Lifestyle Accounts for Family Costs
A taxable lifestyle account can cover what a dependent care FSA cannot, such as backup care or elder-care services. It is flexible because it is taxable wages, which employees should hear upfront.
Adoption costs are the exception with their own rules: a written adoption assistance program can reimburse qualified adoption expenses free of federal income tax, up to an annual limit.
Emergency Assistance
Disaster relief payments can be tax-free only in connection with a qualified disaster as the tax code defines it. Other hardship help is generally taxable, and structures such as an employee relief fund need counsel to set them up correctly.
A Written Policy
Who qualifies, how much and who decides should be written before the first request, so the second employee in need is treated like the first. A written family support policy keeps assistance fair and consistent for every employee who asks.
What employers ask about family support accounts.
Does the higher limit apply automatically?
No. Your plan document and your enrollment system both need to reflect it, or employees will be capped at the old amount. Updating plan documents and systems lets employees use the full 2026 dependent care FSA limit. Check both before enrollment opens.
Can the employer contribute?
Yes, but employer contributions count toward the same annual limit and the same testing, which is why we model them together. Employer contributions count toward dependent care FSA limits and testing, so model them before offering them.
What happens to unused money?
Dependent care balances are generally forfeited if not used within the plan year and any grace period your plan allows. We help employees size elections to care they have already arranged. Realistic elections reduce dependent care FSA forfeitures. Size elections to care already arranged.
Related guides.
Schools, Child Care and Education Employers
School-year contracts, part-time aides and summer coverage.
Caregiver Support, Sick Time and Paid Leave
How leave laws and paid-time programs connect to your health plan and policies.
Tuition and Student Loan Assistance
How a Section 127 program lets employers help with school and loans tax-free.
Dependent Care FSAs and Childcare Benefits
How they work and what employers should know.
Dependent Care Assistance Programs Under Section 129
The $7,500 limit and the tests behind it.
Where the Rules Come From.
The laws and rules named on this page link to the statute or regulation they come from. This is general information, not legal or tax advice, and rules change, so check the current text.
Health Savings Accounts (26 U.S.C. 223)
Tax rules for health savings accounts paired with qualifying high-deductible health plans.
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