The One Big Beautiful Bill Act raised the federal pre-tax limit for dependent care assistance programs (DCAPs) from $5,000 to $7,500 starting in 2026. Massachusetts, however, bases its tax rules on the Internal Revenue Code as it stood on January 1, 2024, so it isn’t adopting the increase for 2026. For Massachusetts state income tax, only $5,000 of dependent care assistance can be excluded. Any amount above that will count as taxable wages at the state level, even though it remains excluded for federal purposes.
This article is informational and does not constitute legal or financial advice. Consult with an employment lawyer or accountant for additional clarification on how these changes impact your company.
