Dependent Care Assistance Program Contribution Limits Doubled to $10,000 Under CHILD Act, Starting 2025

The CHILD Act of 2025—officially known as the "Combating High Inflation Limiting Daycare Act of 2025"—is set to significantly increase the amount of money you can put into dependent care assistance programs (DCAPs). Starting January 1, 2025, the maximum contribution limit jumps from $5,000 to $10,000 for joint filers (and from $2,500 to $5,000 for those filing separately). This is a big deal, as DCAPs are a common way to use pre-tax dollars to pay for things like daycare, after-school programs, and even elder care. The change comes from an amendment to Section 129(a)(2)(A) of the Internal Revenue Code.

Doubling Down on Dependent Care

This bill isn't just a one-time bump. It also includes a cost-of-living adjustment. That means the $10,000 limit will be adjusted annually for inflation, ensuring the benefit doesn't lose value over time. This adjustment is calculated using the rules in section 1(f)(3) of the tax code, but it uses 2023 as the base year instead of 2016, and any increases will be rounded to the nearest $50. The bill also removes subparagraph (D) from Section 129(a)(2), though the immediate impact of that removal isn't clear from the text. Basically, your ability to sock away pre-tax money for dependent care is about to get a serious boost.

Real-World Relief

Let's say you're a software engineer with two kids in daycare, costing you around $1,500 a month. Currently, you can only set aside $5,000 a year tax-free through a DCAP. Under the CHILD Act, you could put aside the full $10,000, potentially saving you a significant chunk in taxes. Or picture a construction worker with an elderly parent needing in-home care. This increased limit could make a real difference in affording that care without breaking the bank. More broadly, this should ease the financial strain on working families and might even allow some parents to return to the workforce, knowing more of their paycheck can go towards care.

Looking Ahead

While this seems like a win for families, there are a few things to keep an eye on. There's always the potential for some folks to try to game the system, claiming more dependent care expenses than they actually have. Also, childcare providers could see this as an opportunity to raise prices, knowing families have more funds available. However, the bill's direct impact is clear: it puts more pre-tax money in the pockets of people with dependents, and it's designed to keep up with rising costs. The change goes into effect at the start of 2025, so you'll see the impact on your taxes in the 2026 filing season.