For the 2025 tax year, the most a worker could run through an employer’s dependent care account and keep out of taxable income was $5,000. For tax years beginning after December 31, 2025, that ceiling is $7,500. The difference is $2,500 of child care spending that moves from after-tax dollars to pre-tax dollars, and it applies to the plan year working parents are living in right now.
The Section 129 ceiling moved from $5,000 to $7,500
A dependent care assistance program, which usually appears on a benefits enrollment screen as a dependent care FSA, is the workplace account that pays for day care, preschool, before-and-after-school programs, day camp, and adult day care for a dependent who cannot care for himself or herself. Money an employee routes into that account is not counted as wages. It never appears as taxable income in the first place, which is what separates an exclusion from a deduction or a credit claimed later on a return.
Treasury and the IRS restated the current ceiling in a rulemaking published in the Federal Register on August 11, 2026. The text is unambiguous: the amount that may be excluded annually from an employee’s gross income under a dependent care assistance program “is limited to $7,500 ($3,750 in the case of a married individual filing a separate return).” The same document notes the higher figure applies for taxable years beginning after December 31, 2025.
The old number is easy to find for comparison. IRS Publication 503, written for preparing 2025 returns, describes the exclusion the way it stood before the change, capped at $5,000 in total. That $5,000 had been the standing figure for decades, interrupted only by a one-year pandemic increase for 2021.
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Congress set the dollar figure, and the August 11 rulemaking sets the testing
It is worth being precise about who did what, because the timing invites a wrong reading. The IRS did not raise the limit. Congress did, in the 2025 tax law, and the higher cap took effect on its own schedule for tax years beginning after December 31, 2025. The August document simply recites that statutory number while doing something else entirely.
What the August document actually proposes is the nondiscrimination testing machinery that employers have to run. The IRS announced it as news release IR-2026-90 on August 11, 2026, alongside guidance for employers that want to contribute to Trump Accounts. Comments on the proposal are due September 25, 2026, and a public hearing is scheduled for October 15, 2026. A household reading those dates should not conclude that the $7,500 is pending or provisional. The comment period governs the testing rules for employers, not the exclusion amount.
What an extra $2,500 of pre-tax room is worth in a household budget
Because this is an exclusion rather than a credit, the size of the benefit scales with the household’s federal tax rate. Wages that never enter gross income are not taxed at any rate, so a family in a higher bracket keeps more of the $2,500 than a family in a lower one. There is no single dollar answer that applies to everyone, and any figure quoted as a universal saving is guesswork.
There is also an offset that a family should see before maxing out the account. Publication 503 explains that benefits excluded through a workplace program reduce the expenses available for the child and dependent care credit, whose dollar limits are $3,000 for one qualifying individual and $6,000 for two or more. A household that fills a $7,500 dependent care account has already excluded more than either of those limits, which leaves nothing to claim the credit against. The higher exclusion is not stacked on top of the credit. For most families with real day care bills, it replaces it.
Married filing separately is capped at $3,750, and no employer plan means no exclusion
Two limits are doing quiet work inside the headline number. The first is in the regulatory text itself: a married individual filing a separate return is held to $3,750, exactly half. The second is structural. This is a workplace benefit, delivered through a plan an employer chooses to maintain. A parent whose employer offers no dependent care assistance program gets nothing from the increase, regardless of what the child care bill looks like, because there is no account to route the money through.
For workers who do have a plan, the paperwork trail is ordinary. Employer-provided dependent care benefits show up in box 10 of the Form W-2 and are reconciled on Form 2441, Child and Dependent Care Expenses. Anything contributed above the allowable exclusion gets added back into taxable wages, so the ceiling is enforced on the return rather than at the enrollment screen.
The nondiscrimination proposal, the $25,000 salary reduction rule, and the October hearing
The rest of the August rulemaking is aimed squarely at employers. In general, eligibility for these programs and the benefits provided under them may not discriminate in favor of highly compensated employees or their dependents, and the proposal would require eligibility classifications to be reasonable, based on objective business criteria, and tested either against facts and circumstances or against a numerical safe harbor. A statutory special rule lets a plan disregard employees earning less than $25,000 when benefits are provided through a salary reduction agreement. Employees who have not reached age 21 and completed a year of service can also be excluded from the tests.
The same document confirms a separate and much smaller employer benefit that is easy to confuse with this one. Employer contributions to an employee’s Trump Account are excludable up to $2,500 per employee per year, adjusted for inflation after 2027, and that limit applies per employee no matter how many children are involved. It is a different account with a different cap, and it does not move the dependent care figure.
For a family deciding how much to elect this plan year, the sentence that governs is the one printed in the Federal Register on August 11: the amount excludable annually under a dependent care assistance program is limited to $7,500, or $3,750 for a married individual filing a separate return.
This article was produced with AI assistance and reviewed by a human editor. Figures are linked to their primary sources; where a claim could not be verified from the public record, we say so.
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