Somewhere in a payroll system right now, a default dependent care FSA election is still sitting at $5,000 — the exact ceiling that's been unchanged since 1986. The One Big Beautiful Bill Act, signed into law in July 2025, raised that limit to $7,500 for single filers and married couples filing jointly ($3,750 if you file separately), effective January 1, 2026. We're eight months into the first plan year that number applies, and if you set your election last fall before payroll systems and benefits portals had fully caught up to the new law, there's a decent chance you're still contributing to the old assumption.
This matters right now for a specific reason: most employers run open enrollment for the 2027 plan year sometime between October and December, which means the election you make in the next couple of months locks in your childcare and medical FSA contributions for all of next year. Get the number wrong in either direction and you're either losing money to forfeiture or leaving a tax break on the table that would have covered real daycare or after-school bills.
What actually changed, and when
Dependent care FSA contributions cover daycare, preschool, before- and after-school programs, and summer day camp for kids under 13, plus care for a spouse or dependent who can't care for themselves. The $5,000 cap had sat frozen for close to four decades while childcare costs climbed every year around it, which is why the jump to $7,500 got called a "long-awaited" fix by benefits advisors rather than a routine inflation adjustment. Unlike HSA and health FSA limits, which the IRS bumps up almost every year to track inflation, the dependent care figure is written directly into the statute — it moved because Congress changed the law, not because of an annual formula, and it won't move again until Congress acts a second time. Self-employed parents and gig workers should note upfront that a dependent care FSA only exists inside an employer's Section 125 cafeteria plan — there's no self-employed version of this account the way there's a solo 401(k) or a SEP IRA, so if you don't receive a W-2, the new $7,500 ceiling doesn't apply to you and the Child and Dependent Care Tax Credit is your only federal-level relief. That distinction got lost in a lot of the coverage that followed the law's passage, because most of the explainers assumed a traditional employer-benefits audience.
- Dependent care FSA limit: $7,500 single/joint filers, $3,750 married filing separately (up from $5,000/$2,500), effective for plan years starting January 1, 2026
- Health FSA limit for 2026: $3,400, a $100 bump from 2025's $3,300
- Health FSA carryover limit for 2026: $680, up from $660 — and a plan can offer a carryover or a grace period, never both
- 2027 figures for both accounts haven't been released yet; the IRS typically publishes them alongside the 401(k) and IRA numbers in October or November, so don't expect an update on your benefits portal before then
The part your HR portal might not have caught up to
Here's the nuance that trips people up. The IRS increase and the employer's actual plan document are two different things, and raising the statutory ceiling doesn't automatically raise what your specific employer lets you contribute. Employers that want to adopt the full $7,500 had until December 31, 2026 to formally amend their Section 125 cafeteria plan documents, and some are dragging their feet — partly because a higher dependent care limit makes the nondiscrimination testing employers have to run harder to pass, especially at companies where highly compensated employees are the ones most likely to max out the account.
Call your benefits department or check the actual plan document, not just a generic IRS explainer, before you assume $7,500 is available to you. If your employer capped it lower — plenty have kept $5,000 in place for 2026 while they work through the compliance question — set your election to match what's actually offered, not what the newspaper article about the new law said.
Should you actually max it out?
Don't automatically set your dependent care election to $7,500 just because the ceiling moved. Run the comparison against the Child and Dependent Care Tax Credit first — for lower-income households, the credit can be worth more than the FSA's tax-free treatment, and you can't double-dip by claiming both on the same dollar of expenses. As a rule of thumb, higher earners in the 22% bracket or above generally come out ahead maxing the FSA, because the tax savings on a pretax payroll deduction beats the credit's percentage once your income pushes the credit rate down toward its 20% floor. The credit itself is capped at 20% to 35% of up to $3,000 in expenses for one child or $6,000 for two or more, with the rate falling to that 20% floor once household adjusted gross income clears $43,000 — a threshold so low that most dual-income households land there almost automatically, which is exactly why the FSA usually wins once you're past it. Run both numbers side by side against your actual expected childcare bill before you commit to either one; a rough estimate on the enrollment form takes two minutes and it's the only way to know for certain which path saves more in your specific bracket.
Set the election close to your actual, provable annual childcare spend — not a round number that feels safe. Dependent care FSAs are use-it-or-lose-it with no carryover option at all (the carryover rule only applies to health FSAs), so overestimating by even a few hundred dollars means forfeiting real money back to your employer at year-end. Undershoot instead if you're unsure, and if your actual costs run higher than expected, remember a dependent care FSA election can be changed mid-year if you have a qualifying life event — a new daycare contract, a change in your child's school schedule, or a shift in your own work hours can all count, depending on your plan's rules.
Run the actual numbers before you decide, because "the max is higher now" isn't the same as "maxing it is right for me." A household earning $110,000 combined and sitting in the 22% federal bracket who maxes the new $7,500 limit avoids federal income tax on that amount plus the 7.65% payroll tax that would otherwise come out for Social Security and Medicare — call it roughly $2,225 in combined tax savings on money you were going to spend on daycare anyway. Compare that against a family with $2,000 in actual annual dependent care costs electing the full $7,500: they'd forfeit $5,500 back to the employer, which is a far worse outcome than just claiming the smaller, income-scaled tax credit instead. The FSA only wins when your real spending gets close to the limit you elect.
The health FSA runs on a different clock
Health FSA money behaves nothing like the dependent care account, and conflating the two is the second most common enrollment mistake. At $3,400 for 2026, the health FSA covers copays, prescriptions, dental work, orthodontia, and a long list of IRS-approved medical expenses — and because it carries a $680 carryover option (if your employer's plan includes one), a health FSA is far more forgiving of a slightly-too-high estimate than the dependent care account is. Check which version your plan actually offers before you assume you get the safety net.
Some employers still run a 2.5-month grace period instead of a carryover — money left unspent on December 31 stays usable through mid-March of the following year, then disappears for good. Either way, mark the actual deadline on your calendar the day open enrollment closes, because "sometime in the spring" isn't a plan; it's how a couple hundred dollars in orthodontics money quietly evaporates every March.
What to actually do before your enrollment window closes
Pull your actual 2026 daycare invoices or medical receipts before you touch the enrollment portal — guessing from memory is how people land $1,000 off in either direction. Confirm your specific employer's dependent care ceiling with HR rather than assuming the federal $7,500 applies automatically, check whether your health FSA uses a carryover or a grace period, and set both elections to numbers you can actually document if the IRS ever asks. The new dependent care limit is real money on the table for the first time in almost forty years — just make sure your plan document, not last year's habit, is what decides your number.