Is There a Dependent Care FSA Income Limit?
While no official income cap exists for a Dependent Care FSA, your actual contribution limit is determined by earnings and employer-specific rules.
A Dependent Care Flexible Spending Account (DCFSA) is an employer-sponsored benefit that allows you to set aside pre-tax money from your paycheck. These funds can be used for qualified care expenses for a child or another dependent, such as daycare or after-school programs. The primary advantage is a reduction in your taxable income, and the account is for expenses necessary for you and your spouse to work or look for work.
Annual Contribution Limits
The Internal Revenue Service (IRS) establishes the maximum amount of money a household can contribute to a Dependent Care FSA each year. For 2025, the annual contribution limit is set at $5,000 per household. This limit applies whether you are single, head of household, or married and filing a joint tax return. It is a household limit, meaning if both you and your spouse have access to a DCFSA through your respective employers, your combined contributions cannot exceed this $5,000 total.
A different limit applies to married couples who choose to file their income taxes separately. In this situation, each spouse is permitted to contribute a maximum of $2,500 to their own DCFSA.
It is important to carefully plan your annual election, as DCFSA plans are subject to a “use-it-or-lose-it” rule. This IRS provision means that any money left in the account at the end of the plan year, or after a specified grace period if your employer’s plan allows for one, is forfeited. The funds cannot be returned to you as cash or rolled over into the next year.
The Earned Income Rule
Beyond the standard IRS contribution maximums, a separate rule known as the earned income rule can further limit how much you can contribute. This rule states that your total contribution cannot be more than the lesser of the IRS maximum or the earned income of the lower-earning spouse. If you are single, your contribution is limited to your own earned income for the year.
Earned income includes wages, salaries, tips, and net earnings from self-employment. It does not include income from sources like investments, pensions, or unemployment benefits. For example, if one spouse earns a salary of $80,000 and the other earns $4,500 from a part-time job, the household’s maximum DCFSA contribution for the year would be capped at $4,500.
The IRS provides a special consideration for a non-working spouse. If your spouse was a full-time student for at least five months during the year or was physically or mentally incapable of self-care, they are treated as having a certain amount of earned income. For the purposes of this rule, their deemed monthly income is $250 if you have one qualifying dependent, or $500 if you have two or more. This allows the working spouse to contribute up to $3,000 annually for one dependent or the full $5,000 for two or more, assuming their own earned income is sufficient.
Highly Compensated Employee Considerations
High income can indirectly limit the amount you can contribute to a DCFSA, even though there is no direct income cap for participation. This occurs because of nondiscrimination testing (NDT) that employers must perform on their benefit plans. These tests are required by the IRS to ensure the plan does not unfairly benefit high earners over the rest of the company’s employees.
The IRS defines a “Highly Compensated Employee” (HCE) for testing purposes based on specific criteria. For 2025 plan year testing, an employee qualifies as an HCE if they earned more than $155,000 in the preceding year (2024) or owned more than 5% of the business. Employers may also have the option to limit the HCE group to only the top 20% of employees ranked by compensation.
The primary test for DCFSAs is the “55% average benefits test.” This test compares the average benefit received by HCEs to the average benefit received by non-highly compensated employees (NHCEs). To pass, the average DCFSA benefit for NHCEs must be at least 55% of the average benefit for HCEs. Because HCEs often have a higher participation rate and contribute larger amounts, plans can be at risk of failing this test.
If an employer’s DCFSA plan fails the 55% average benefits test, the company must take corrective action. The employer is required to reduce the pre-tax contributions of the HCEs, starting with those who elected the highest amounts, until the test passes. This means an HCE who initially elected to contribute the full $5,000 may have their contribution lowered, creating a personalized, employer-specific limit based on their high-income status and the participation of their colleagues.