If you’re juggling work and childcare costs, we have news that will make your day – and your budget – a whole lot better: Congress passed a major increase to the annual Dependent Care FSA limit.
The One Big Beautiful Bill Act of 2025 (OBBBA 2025) just delivered something working families have needed for decades: a permanent increase to the Dependent Care Flexible Spending Account (FSA) limit from $5,000 to $7,500 per year. That’s an extra $2,500 you can now set aside with pre-tax dollars for childcare expenses.
What the New Dependent Care FSA Limit Means for Your Family Budget
Let’s get straight to what matters most – your bottom line. With this increase, you can save approximately $625 to $875 more per year in taxes, depending on your tax bracket. That’s real money back in your pocket to help you cover everyday cost of living expenses.
Here’s how it breaks down:
- Previous limit: $5,000 per year
- New limit: $7,500 per year
- Additional tax savings: $625-$875 annually
The previous $5,000 limit was set in 1986 – nearly 40 years ago. To put that in perspective, if that limit had simply kept up with inflation, it would be over $13,000 today. Instead, it stayed frozen while childcare costs skyrocketed.
During the COVID-19 pandemic, the government temporarily raised the limit to $10,500 for 2021, giving families a glimpse of what real relief looked like. When it dropped back to $5,000 in 2022, parents everywhere felt the pinch.
What You Can Use This Money For
Your Dependent Care FSA (also known as a Dependent Care Assistance Plan – or DCAP) can cover more than you might think. The $7,500 can be used for:
- Daycare and preschool for children under 13
- Before and after-school care programs
- Summer day camps (but not overnight camps)
- Babysitting while you work
- Adult daycare for elderly dependents
The key requirement is that these expenses must be necessary for you (and your spouse, if married) to work or seek employment.
For HR Directors: What This Means for Your Team
This increase affects more than just individual families – it impacts your entire organization’s benefits strategy and employee satisfaction.
Immediate impacts include:
- Higher participation rates: More employees will likely maximize their Dependent Care FSA contributions
- Improved retention: Better family benefits help keep working parents
- Reduced financial stress: Employees with more childcare support are often more focused and productive
Action items for your team:
- Update benefit communications and enrollment materials
- Prepare for increased DCFSA administration volume
- Consider highlighting this enhancement in recruitment efforts
- Plan employee education sessions about the new limits
Looking Forward
After nearly four decades of stagnation, working families finally have a Dependent Care FSA that better reflects the reality of modern childcare costs. While $7,500 still doesn’t cover full childcare costs for most families, it’s a meaningful step toward making work and parenthood more compatible.
Questions about your specific Dependent Care FSA? Check with your HR department or benefits administrator for details about your plan’s implementation timeline and procedures.
Beneliance is a leading third-party benefits administrator serving employers with FSA, HSA, HRA, and COBRA administration since 1996.
