Dependent Care Accounts Now Cover $7,500 in Child Care

The federal government just handed Long Island employers a powerful new recruitment and retention tool: dependent care flexible spending accounts (FSAs) can now hold $7,500 per year, up from $5,000. That's an extra $2,500 your employees can use tax-free for child care, elder care, and after-school programs.

For a Nassau County employee in the 22% tax bracket, this change means an additional $550 in tax savings annually. For married couples filing separately, the limit increased from $2,500 to $3,750 - still a meaningful boost for families juggling care expenses.

Why This Matters for Your Bottom Line

Child care costs are crushing Long Island families. The average annual cost for infant care in New York exceeds $15,000, making this benefit more valuable than ever. When employees can stretch their paychecks further with tax-free dependent care dollars, they're less likely to leave for a $2,000 salary bump elsewhere.

But here's the catch: this isn't automatic. Your FSA plan documents may need updating to reflect the new limits. Some plan providers implemented the change seamlessly, while others require formal amendments. If your documents still cap contributions at $5,000, your employees can't access the higher limit - and you lose the competitive advantage.

The Plan Amendment Question

According to The National Law Review, employers should consult their FSA document provider immediately to determine if plan amendments are needed. Missing this step means employees hit the old $5,000 wall when they try to contribute more.

This isn't just about 2026 either. Employees can adjust their dependent care FSA contributions mid-year if they experience qualifying life events like a new child, change in spouse's employment, or significant cost increases for existing care arrangements. With properly administered FSA plans, your employees can maximize these tax advantages throughout the year.

Marketing Your Enhanced Benefit

Most employees don't understand how FSAs work or realize the limits increased. That's money with zero return on investment. When employees can't appreciate benefits they don't understand, those benefits don't help with retention or recruitment.

Smart employers are already updating their benefits communications to highlight the $7,500 limit. Frame it simply: "Save up to $1,875 per year on child care costs" (assuming a 25% combined tax rate). That's language any parent understands.

Implementation Timeline

The increase took effect January 1, 2026, but implementation varies by provider. Some employees may already be contributing at the higher limits, while others remain stuck at $5,000. Check with your benefits provider immediately to confirm your plan's current status.

Remember, dependent care FSA dollars must be used by the plan year end (with any applicable grace period or carryover your plan allows). Employees should adjust contributions carefully to avoid forfeiting unused funds.

Competitive Advantage in a Tight Labor Market

Long Island's competitive job market means talented employees have choices. A dependent care FSA with the full $7,500 limit signals that you're staying current with federal changes and maximizing employee value.

Professional service firms, medical practices, and other knowledge-based employers are already leveraging this enhancement in job postings and employee communications. Don't let competitors gain an edge with a benefit you're already paying for but not promoting effectively.

Dependent care FSAs work alongside other family-friendly benefits like flexible scheduling and remote work options. The combination creates a compelling package for employees balancing work and family responsibilities - exactly the demographic driving Long Island's skilled workforce.

Benton Oakfield ensures your FSA plan documents reflect current federal limits and your employees understand how to maximize their tax savings. We handle the plan amendments, provider coordination, and employee education so you can focus on running your business while offering competitive benefits that actually drive retention.

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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