FSAs Did Something This Year They Haven’t Done Since 1986

Flexible spending accounts (FSAs) provide incredible value to workers who are eligible for them. This includes not just FSAs to help you cover healthcare costs, but also the Dependent Care FSA (DC-FSA), which is a huge source of help for parents who must pay for care for their kids.

While FSAs offer ample tax savings, the DC-FSA has become less useful over time. That’s changing this year, though, as this FSA account is doing something that it hasn’t done since 1986.

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Your FSA for dependent care is changing for the first time in decades

Those who use the dependent care FSA got some great news this year. The limit on the amount you can put away pre-tax permanently increased for the first time since 1986.

In 1986, Congress set a $5,000 contribution limit for this account, or $2,500 for taxpayers who file as married filing separately. When this limit was set, unfortunately, lawmakers did not index it to inflation. This meant that an act of Congress would be necessary to change the amount that workers could contribute.

That act of Congress never came, even as child care rose dramatically. While there was a temporary bump in the amount you could put away in 2021 during the COVID-19 pandemic, the increase lasted just for the year before the $5,000 cap returned.

What was the result of this inaction? The FSA contribution limits were much lower than the amount that it actually cost to provide dependent care.

In fact, an analysis in 2020 found that, if the contribution limit had been indexed to inflation, the allowable contribution amount would have risen to $11,750 — which was roughly equal to the national average cost of day care at the time.

Unfortunately, since that didn’t happen, parents got less help — until this year.

The dependent care FSA limit has finally been bumped up — but still may not be enough

The good news is, Congress finally took action to make a change to the DC-FSA limit. The limit was increased to $7,500 in 2026 — the first permanent change in the contribution amount in 40 years. Employers can choose to implement this higher limit if they want to offer workers more help covering child care expenses.

Unfortunately, this limit is not quite as high as it would have been had the original 1980’s amount been indexed to inflation. In addition, it’s well below the national average cost of child care, which is $15,570, according to the First Five Years Fund.

Still, the change is a welcome one because being able to pay for more child care with pre-tax dollars can provide cash-strapped parents with at least some additional savings.

You can elect how much to put into your account during open enrollment periods or when you have a qualifying life event, such as a change in employment status for you or your spouse, the birth or adoption of a child, marriage or divorce, or a day care closure.

Parents should be aware of the contribution-limit change and make an informed choice about how much to invest in their FSAs, now that the limits are higher for 2026 and beyond. Unfortunately, the limit is, once again, not indexed to inflation, so parents in a few decades may find themselves facing this exact same situation with a contribution limit that’s stuck in the past.

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