Americans Have Been Waiting 40 Years for This FSA Rule Change
Key Points
Flexible spending accounts offer important tax breaks, but there are limits on contributions.
There hasn't been a permanent increase in the amount you can contribute to a dependent-care FSA since 1986.
That changed in 2026, when lawmakers increased the allowable-contribution amount to $7,500.
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If you're paying money for healthcare or dependent care and your employer offers a flexible spending account (FSA), you should be taking advantage of it. An FSA allows you to pay for these expenses with pre-tax dollars.
Unfortunately, there are strict limits on how much you can contribute to a flexible spending account, and those limits are far below the amount most people need. However, the good news is that the rules for FSAs are changing this year -- and it's a change that Americans have been awaiting for 40 years.
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Coming to FSA accounts in 2026
The big change coming in 2026 will affect those who participate in dependent care flexible spending accounts (DC-FSAs). Specifically, the contribution limit is permanently increasing for the first time in 40 years.
The contribution limit was set at $5,000 in 1986, or $2,500 for those who file their taxes as married filing separately. The limit was not indexed to inflation, which means it doesn't automatically increase as costs rise, unlike with certain other tax-advantaged retirement plans like a 401(k) and IRA. Lawmakers haven't increased it, which is a pretty big problem, given that the cost of child care today is a lot higher than the fees that parents paid in the 1980s.
There was a temporary increase during the COVID-19 pandemic, but this didn't provide long-term relief for parents struggling to pay for care. Now, finally, after 40 years, lawmakers have authorized a permanent increase in the contribution limit, and workers will now be able to put $7,500 per year into their accounts.
Employers don't have to make this change, but they can do so, and any parent who has an eligible dependent and pays for covered child care services should check to see if their employer is allowing larger contributions. Being able to pay for child care with pre-tax money by making FSA contributions can effectively make this care cheaper.
Should you take advantage of the new contribution limits?
If you're paying more than $5,000 for covered child care in 2026 and your employer offers you the opportunity to do so, take advantage of the new higher FSA contribution limits. You can adjust the amount you contribute during open enrollment or after any qualifying life event, such as the birth or adoption of a child, your day care closing, a change in your employment, or a divorce.
Be sure to look carefully at how much you're currently investing and the size of your tax bill. By doing so, you can make the most of this account after this long-awaited change to the rules.
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