Summary

Increases the maximum pre-tax employee contribution for dependent care assistance (section 129 flexible spending accounts) from the current $5,000 level to $10,000 and requires annual indexing of the dollar limit for inflation with increases rounded to the nearest $50, effective for calendar years beginning after December 31, 2024. The bill also removes a specified subparagraph of the current section and adds an indexing mechanism tied to the federal cost-of-living adjustment rules for tax amounts. The change affects employees who use dependent care FSAs, employers that offer those plans (including plan document and payroll changes), and the IRS for administration and future inflation adjustments. The statutory text contains some drafting ambiguities, but the principal policy is a permanent increase and automatic inflation adjustment for dependent care pre-tax limits.

Key Points

• Raises the maximum employee pre-tax dependent care FSA contribution (statutory limit) to a higher dollar amount (text indicates $10,000).
• Requires annual cost-of-living indexing for the dependent care FSA dollar amounts with increases rounded to the nearest $50.
• Applies to calendar years beginning after December 31, 2024 (first full effect in 2025 plan years).
• Removes a specified subparagraph of current IRC section 129(a)(2) as part of the statutory amendment.
• Affects employees using dependent care FSAs, employers offering those plans, and the IRS for administration and guidance.
• Likely reduces taxable income for participating workers and increases the tax expenditure associated with dependent care FSAs.
• Employers and plan administrators must update plan documents, communications, and payroll systems.
• Text contains some drafting ambiguities; the intended policy change (higher limit + indexing) is clear even if some drafting needs clarification.

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