Employers seeking to offer family-friendly benefits may want to consider flexible spending accounts (FSAs) for dependent care. These FSAs let employees make pre-tax contributions through payroll withholding to help cover eligible expenses.
Because of the major tax bill enacted on July 4, 2025, the annual contribution limit, currently $5,000, will rise to $7,500 in 2026.
FSA contributions reduce employees’ income tax, payroll tax, and employers’ payroll tax. Withdrawals used to pay qualified expenses are tax-free. These include expenses for care for a child under age 13 or another dependent unable to care for themselves due to physical or mental limitations.