If your benefits portal copies last year’s choices forward, the dependent care FSA line might still say $5,000. That number is out of date. Starting in 2026, the dependent care FSA limit rose to $7,500 per household, or $3,750 if you’re married and file separately.

According to benefits firm CBIZ, this is the first permanent increase since 1986, and the new limit is not indexed for inflation. It stays at $7,500 until Congress changes it. If your employer’s open enrollment for 2027 plans is open now, this is a good week to look at that number again.

Our view: if you pay for care, set your election to match what you actually spend. For some families, skipping the account and taking the tax credit comes out ahead instead. Which choice fits you comes down to some simple math, and we’ll walk through it with you.

What a dependent care FSA is, and who qualifies

A dependent care flexible spending account (DCFSA) lets you set aside part of your paycheck before taxes and then pay yourself back for care costs. The IRS says these contributions are not counted as wages for federal income tax and generally are not subject to Social Security and Medicare taxes either.

The care has to be for a qualifying person. A child qualifies if they are your dependent and were under 13 when the care was provided. According to IRS Publication 503, a child stops qualifying on their 13th birthday, so care after that date doesn’t count. A spouse or other dependent who can’t care for themselves can also qualify.

The care also has to make it possible for you to work or look for work. If you’re married, that applies to both of you. And the tax-free amount can’t be more than the earned income of the lower-earning spouse, per IRS Publication 15-B. If one parent earns less than $7,500 in a year, that lower number is your real limit.

What counts: daycare, preschool, after-school care and summer day camp

IRS Publication 503 spells out what counts as care. Here is what it says about care for young kids.

Daycare and in-home care count when they cover your child while you work. A babysitter or nanny can count too, as long as the care is what you’re paying for.

Preschool and nursery school count as care. Tuition for kindergarten and higher grades does not.

Before- and after-school care counts, including for kids in kindergarten and up.

Summer day camp may count. Overnight camp does not, and neither do summer school or tutoring. If your summer plan includes a week of sleepaway camp, plan to pay for that week with regular after-tax money, since the IRS doesn’t treat overnight camp as care. The day camp down the street may be eligible, so it can be worth comparing the two.

Who you pay matters. Payments to your spouse don’t count, and neither do payments to your own child who is under 19 at the end of the year. Payments to a relative who isn’t your dependent, like a grandparent, can count.

If you’re still deciding whether a second paycheck covers childcare at all, our piece on the math to run before you go back to work lays out the full cost picture first.

How to estimate your dependent care FSA election

The main risk with this account is the use-it-or-lose-it rule. Dependent care FSAs are subject to an annual “use-or-lose” rule, so money you don’t spend by the plan’s deadline is forfeited. Some plans add a short grace period. The federal employee program, for example, gives a 2½-month grace period and no carryover for its dependent care account. Your employer’s plan may be different, so check.

That risk is manageable if you build your number from real costs.

Start with what you pay now. Multiply your weekly daycare or after-school cost by the weeks you’ll actually use it in 2027. Subtract weeks when the provider is closed or you’re on vacation and not paying.

Add the extras you can predict. Include before-care fees and the day camp weeks you’re planning for next summer.

Check birthdays. If a child turns 13 during 2027, stop counting their care on that date.

Round down when you’re unsure. If your estimate comes to $7,900, elect the full $7,500. If it comes to $6,200 and half of that depends on a camp you haven’t booked, elect less. Missing out on a few hundred dollars of tax savings costs less than forfeiting money you already set aside.

Our rule of thumb: elect what you’re nearly certain to spend, not what you hope to spend.

The child and dependent care tax credit changed for 2026, too

A 2025 tax law also changed the credit. According to the IRS, starting with tax year 2026 the maximum credit rate rose from 35% to 50% of qualifying expenses. The expense limits did not change: $3,000 for one qualifying person and $6,000 for two or more.

The 50% rate is for lower incomes. Under the current text of the tax code (26 U.S.C. § 21), the rate drops one percentage point for each $2,000 of adjusted gross income above $15,000, down to 35%. It drops again above $75,000 of income ($150,000 for joint filers), by one point per $2,000 ($4,000 for joint filers), and stops at 20%.

You can’t use the same dollars for both breaks. Every dollar you run through a dependent care FSA reduces the $3,000 or $6,000 that the credit can be based on. A $7,500 election uses up the whole credit limit for any family, whether you have one child in care or three.

A worked example: $5,000 vs. $7,500 vs. no FSA

Here is one family’s math. Your numbers will be different.

Assumptions:

• Married, filing jointly, with two children under 13 in paid care
• $16,000 a year in eligible care costs
• Adjusted gross income of about $140,000, which puts the credit rate at 35%
• 22% federal income tax bracket
• 7.65% in Social Security and Medicare taxes saved on FSA money (6.2% plus 1.45%), which assumes each parent earns under the 2026 Social Security wage base of $184,500
• Both parents earn well over $7,500, the employer plan allows the full $7,500, and state income tax is left out

No FSA, credit only: $6,000 × 35% = $2,100.

$5,000 FSA: $5,000 × 29.65% (22% + 7.65%) = about $1,483 in tax savings. The credit limit drops to $1,000, and $1,000 × 35% = $350. Total: about $1,833.

$7,500 FSA: $7,500 × 29.65% = about $2,224. The credit limit drops to zero.

In this example, the old $5,000 election comes in about $267 below skipping the FSA and taking the credit, and about $391 below electing the full $7,500. That surprised us. The old default is the worst of the three choices for this family.

The answer can change for your family. At higher incomes, the credit rate falls toward 20%, so the FSA tends to win by more. At lower incomes, the credit rate climbs toward 50% and tax brackets are lower, so the credit alone can come out ahead. With one child, the credit is capped at $3,000 of expenses, which often makes the full FSA election the stronger choice when your costs reach $7,500. State income tax can also change the result.

This is general information, not tax advice. Check with HR or a tax professional about your situation.

Before you submit your open enrollment choices

Ask HR whether your plan has been updated to the $7,500 limit. CBIZ advised employers to amend their plan documents for the higher limit, and your plan’s cap is the one that applies to your paycheck.

If both parents have a dependent care FSA at work, coordinate. The $7,500 limit covers the household, so split it between you instead of each electing $7,500.

Then write down how you got your number. That gives you a starting point at next year’s open enrollment.

For the rest of the family-friendly benefits worth a look this season, including backup childcare and tuition help, see the employee benefits you don’t want to ignore. And if the higher election frees up a little cash each month, our guide to accounts to open for your kid before they turn 10 is a good place to put it to work.

What is the dependent care FSA limit for 2027?

The federal limit is $7,500 per household, or $3,750 if you’re married filing separately. It took effect in 2026 and isn’t indexed for inflation, so it stays the same for 2027 unless Congress changes it. Your employer’s plan may list a lower cap if it hasn’t been updated, so ask HR.

Does overnight summer camp count for a dependent care FSA?

No. Summer day camp may count, but the IRS says overnight camp is not a work-related expense.

Can I use a dependent care FSA and the child care tax credit in the same year?

Yes, but not on the same dollars. The amount you put in the FSA reduces the $3,000 or $6,000 of expenses the credit can use, so a $7,500 election leaves no room for the credit.

If you pay for childcare, this election is a direct way to lower what it costs you. Pull up last year’s receipts, add up your 2027 plans, and type in a number you can stand behind.

If you know a parent who is filling out benefits forms this week, or a friend whose kid just started after-school care, send this their way.

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