Top Benefit Updates to Be Aware of in the New Year

The new year brings many significant updates to the benefits commonly offered by public agencies to employees. Below is a summary of the key changes your agency should be aware of as you prepare for benefits administration in 2026.

• DCAP Contribution Increase: The maximum dependent care flexible spending account (also known as dependent care assistance plans or DCAPs) amount will increase to $7,500 ($3,750 for married filing separately) in 2026. This is up from $5,000 ($2,500 for married filing separately) in prior years.
• Health FSA Contribution Increase: The employee salary reduction contribution limit for health flexible spending accounts (health FSAs) will increase to $3,400 for 2026 (up from $3,300 from 2025).
• Health FSA Carryover Increase: For health FSAs that allow carryovers, employees can carry over up to $660 of unused health FSA funds at the end of a 2025 plan year and will be allowed to carry over up to $680 of unused health FSA funds at the end of a 2026 plan year.
• Educational Assistance Plan (Section 127 Plan) Cap Increase: Starting in 2026, the $5,250 cap for Section 127 educational assistance plans will be indexed for inflation. The IRS will announce what the new amount will be.
• Student Loan Repayments: Employer-provided student loan repayments are now a permanent benefit available through a Section 127 educational assistance plan. Section 127 plans can be updated to permanently include this benefit.
•  Continued Telehealth Coverage under HSAs: High-deductible health plans (HDHP) can cover remote telehealth services before the deductible is met without affecting a participant’s HSA eligibility.
• HSA Reimbursements for Direct Primary Care: Beginning in 2026, HSA participants may spend up to $150 per month per individual ($300 per month per family) to pay for direct primary care (DPC) arrangements. DPC arrangements are contracts between patients and doctors where patients pay a recurring fee for a set of primary care services. Under existing HSA rules, HSA/HDHP participants cannot participate in other health plans. Under the One Big Beautiful Bill Act, DPC arrangements are not considered to be “another health plan,” so HSA participants can subscribe to them.