Dependent care flexible spending account plans face year-end deadline

Which deadline is the real one

Polsinelli told employers in December 2025 to sign amendments for a Jan. 1, 2026 start by Dec. 31, 2025. Insurance Business reported that employers who allowed the higher elections without updating the plan can still adopt the amendment retroactively through Dec. 31, 2026. Benefits counsel should confirm that date.

The reason it matters: a dependent care FSA exists only inside the written cafeteria plan, and a plan that operates outside its written terms risks a violation of the Employee Retirement Income Security Act (ERISA), Insurance Business said. Benefit plans are already drawing lawsuits, and HRD America reported that voluntary benefits lawsuits are turning employer Form 5500 data into evidence.

A testing change that could ease the pressure

Normally, an employer benefit has to pass nondiscrimination tests that show it doesn’t favor highly paid employees. The Internal Revenue Service (IRS) and the Treasury Department proposed regulations on Aug. 11 on how to run those tests for dependent care programs under Internal Revenue Code Section 129, the Federal Register notice for the proposal shows. The preamble says employers can rely on it before it’s final. HRD America covered the details in its report on the IRS proposal linking dependent care and Trump Account rules.

The 55 percent average benefits test requires non-highly compensated employees to receive, on average, at least 55 percent of what highly compensated employees receive. Groom Law Group said the higher limit had made employers nervous about passing it.

Under the proposal, only employees who actually receive dependent care benefits would count in the test’s denominator, the benefits consultancy OneDigital said, and CBIZ reported the same change. Groom Law Group called it the most useful part of the proposal. OneDigital also pointed to a new 90 percent eligibility safe harbor, and CBIZ put the 2026 highly compensated employee threshold at $160,000.