Ancillary Benefits Changes for 2026: What Long Island Employers Need to Know

The dependent care FSA limit just increased 50% to $7,500 for individual and joint filers, while HSA eligibility rules expanded to include direct primary care arrangements and bronze ACA plans. For Long Island employers already dealing with 4-8% health plan cost increases, these ancillary benefit changes create both opportunities and compliance headaches.

What Changed on January 1st

Several major ancillary benefit changes took effect at the start of 2026, with immediate impact on small business benefit plans:

• Dependent Care FSA Limits: Increased from $5,000 to $7,500 annually for individual and joint filers (married filing separately remains at $3,750)
• HSA Expansion: Employees can now contribute to HSAs while enrolled in direct primary care arrangements costing up to $150/month individual or $300/month family
• Bronze Plan HSA Eligibility: Bronze and catastrophic ACA marketplace plans now qualify as high-deductible health plans for HSA purposes
• Federal Poverty Level Updates: New thresholds at $15,960 (up from $15,650) affect ACA affordability calculations and potential penalties

According to recent analysis, these changes come as one-third of employers report health plan cost increases of 4-8%, making ancillary benefits more critical for employee retention without breaking budgets.

The Bottom Line Impact on Costs and Compliance

The dependent care FSA increase offers immediate value for employees with childcare expenses—common among Long Island's professional service firms where dual-income families are the norm. An employee previously maxed out at $5,000 can now shelter an additional $2,500 from taxes, saving roughly $625-$875 annually depending on their tax bracket.

However, the HSA changes create compliance complexity. Employers offering comprehensive benefit packages must audit their current plans to ensure HSA compatibility, especially if they've added telehealth or direct primary care features during the pandemic.

The Federal Poverty Level increase means ACA affordability calculations changed immediately. For employers near the 9.02% affordability threshold, this could trigger shared responsibility penalties if employee premium contributions aren't adjusted.

DOL Enforcement Priorities You Can't Ignore

The Department of Labor's Employee Benefits Security Administration announced heightened focus on several areas affecting small employers:

• Cybersecurity for retirement plans: 401(k) plan sponsors face increased scrutiny of data protection measures
• Mental health and surprise billing compliance: More audits of parity requirements and billing practices
• Service provider reviews: Enhanced examination of 3(21) and 3(38) fiduciary arrangements

For Long Island medical practices, dental offices, and professional firms, this means your 401(k) vendor relationships and mental health benefit administration will face closer scrutiny than ever before.

Practical Steps for the Next 90 Days

Small business owners should take these immediate actions:

Review Plan Documents: Dependent care FSA limits need updating in your plan documents and employee communications. The December 31, 2026 deadline for SECURE 2.0 plan amendments is approaching faster than most realize.

Audit HSA Compatibility: If you've added direct primary care, telehealth, or other health services, verify they don't disqualify employees from HSA contributions under the new rules.

Check ACA Calculations: The higher Federal Poverty Level threshold may require premium contribution adjustments to avoid affordability penalties.

Cybersecurity Review: With DOL's increased focus on 401(k) cybersecurity, now is the time to review your recordkeeper's data protection measures and employee education programs.

Making Benefits Work Harder for Retention

As we've discussed before, Long Island's competitive job market demands benefits that employees actually understand and value. The expanded dependent care FSA limit is meaningless if your employees don't know about it or understand how to use it effectively.

Consider the timing: many employees are still processing their 2025 tax situations and may not realize how much they could have saved with better FSA planning. This creates an opportunity to demonstrate your investment in their financial wellbeing while reducing your payroll tax burden.

Why DIY Compliance Doesn't Work

These overlapping changes—from FSA limits to HSA rules to DOL enforcement priorities—illustrate why small business owners can't handle benefits compliance alone. Missing the ACA affordability adjustment could cost thousands in penalties. Failing to update plan documents by year-end creates fiduciary liability. Getting HSA eligibility wrong affects employees' tax situations.

Benton Oakfield's comprehensive plan administration services handle these compliance updates systematically, ensuring your plan documents reflect current law while your employees understand their expanded options. We monitor regulatory changes, update your plans, and communicate changes to your workforce—so you can focus on running your business instead of deciphering federal benefits regulations.

Compliance Note: Benefit plan rules and tax implications vary based on company size and location. This summary is for informational purposes only. Please contact your Benton Oakfield representative to review how these changes impact your specific plan documents.

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