The One Big Beautiful Bill (OBBB) has raised the dependent care flexible spending account (DCFSA) limit from $5,000 to $7,500 per household, and from $2,500 to $3,750 for those filing separately. While still insufficient to fully cover the wide range of modern childcare costs, this marks the first real increase since 1986.

Third-party administrators (TPAs) have a critical role to play in helping employers react to this change. From updating plan documents to advising on communication and tech readiness, your guidance will shape how much impact this increase can have.

To demonstrate the significance of this policy change, let’s look at where the DCFSA cap began. When it was made permanent in 1986, nearly 40 years ago, $5,000 went much further — roughly equivalent to $14,700¹ today. In effect, families have been operating with a benefit that has lost nearly two-thirds of its original value. Over time, that erosion has quietly undermined the impact of the DCFSA, leaving working parents with fewer resources to manage rising care expenses.

Today’s landscape is stark:

• The average national cost of daycare for one child is over $15,000² per year.
• Under the old limit, only approximately a third of those costs could be offset using pre-tax dollars.
• With the new $7,500 limit, families can now cover approximately 50% of average care expenses tax-free.

By bringing the DCFSA closer in line with real-world expenses, the new limit is a step toward making it a more useful tool for helping families balance work and caregiving responsibilities.

However, without awareness and plan updates, many workers won’t benefit. TPAs must move quickly to close the gap. Here are some next steps and things to consider:

To stay compliant and ensure participants can take full advantage of the new DCFSA cap, TPAs should begin by reviewing all relevant plan materials and systems. This includes auditing Section 125 plan documents to identify and remove any outdated references to the previous $5,000 limit.

Meanwhile, collaborate with employers and technology partners to update payroll systems, enrollment platforms, and HR interfaces so that the revised cap is accurately reflected across all touchpoints. Finally, confirm that the increased limit will be incorporated into upcoming open enrollment cycles so employees can begin maximizing the new benefit as soon as possible.

Clear, proactive communication will be key to driving awareness and participation in the newly expanded DCFSA. Many employees are still unfamiliar with the benefit, and the cap increase presents a timely opportunity to reengage them. Employers should roll out targeted messaging that explains the updated limit, outlines who qualifies, and highlights the potential tax advantages.

It’s especially effective to tailor communications to employees with young children or disabled adult dependents, as they are the most likely to benefit from the change. Framing this as the first meaningful increase in nearly 40 years — one that could translate into hundreds of dollars in additional tax savings — can help the message resonate and encourage renewed interest in enrollment.

Our partners can find useful resources explaining the benefits of a DCFSA (including FAQs, presentation slides, and digital banners) on the Alegeus Marketing Portal.

Participation in DCFSAs remains highly uneven:

• In 2025, 54% of employers offered a DCFSA, down from 58% in 2024 and 65% at the pandemic peak.³
• Also in 2025, 67% of employers rated family care benefits as either “very important” or “extremely important”.³
• As of 2024, public sector employers lead with a 66% offering rate, while private industries including service occupations lag behind.⁴

Use these benchmarks to help employers assess where they stand and encourage smaller firms to reconsider the benefit now that its value has increased.

DCFSA usage tends to concentrate among higher-earning employees — the very groups who can afford formal daycare. Working families in lower-wage or service-sector jobs often need help the most, yet are less likely to have access.

Care-related benefits are especially important for working mothers, who may otherwise reduce hours or leave the workforce entirely. If implemented widely and well, DCFSAs can be a tool to support gender equity, employee retention, and broader workforce participation.

While the new $7,500 cap is a step forward, it doesn’t solve the broader affordability gap on its own. This is where TPAs can step in as strategic advisors, helping employers build more inclusive, family-supportive benefit programs.

Plan design is a critical starting point. TPAs can encourage employers to adopt not only the updated DCFSA limit, but also policies that expand access and flexibility for those who need it most. This could include removing eligibility restrictions that exclude part-time employees or promoting employer-matching contributions to amplify the impact of pre-tax savings.

Beyond the DCFSA itself, TPAs can also recommend complementary benefits to fill remaining gaps, such as access to backup care services or curated childcare networks. These enhancements can be especially consequential for lower-wage workers, single parents, or those caring for multiple dependents. In short, TPAs can start to reshape how employers think about supporting working families, moving from “checking the box” benefits to a more holistic, people-first approach.

Despite a modest dip in offerings post-pandemic, family care benefits are still seen as important by a majority of employers. The raised DCFSA cap could reignite interest and participation, but only if employers and TPAs act quickly and comprehensively.

Make this a moment of progress, not just a policy footnote. With the right updates and outreach, the DCFSA can become a cornerstone benefit for the modern workforce.

Sources:

¹ U.S. Bureau of Labor Statistics | ² FinanceBuzz | ³ SHRM 2025 Employee Benefits Survey | ⁴ U.S. Bureau of Labor Statistics