Wednesday, October 28, 2026
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TotalSource - WFN (State Alerts)
Key Takeaways
Impacted Employers: All Massachusetts Employers
Summary: Massachusetts does not conform to the federal 2026 dependent care assistance exclusion limit of $7,500 and will continue to allow only a $5,000 exclusion from Massachusetts state income tax (SIT) subject wages.
Next Steps: Limit the amount that the employee can utilize for the dependent care assistance exclusion to $5,000 for Massachusetts SIT although Federal law allows an exclusion of $7,500 for federal income tax (FIT).
The Details
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. One of the provisions increased the amount of money that an employee can contribute to an employer sponsored dependent care assistance program (DCAP) on a pre-tax basis.
Under previous law, the maximum annual exclusion for dependent care assistance is $5,000 ($2,500 for a married individual filing separately).
The OBBBA increases the exclusion for dependent care assistance up to $7,500 annually ($3,750 for a married individual filing separately) effective for tax years beginning after December 31, 2025.
Massachusetts:
For Massachusetts income tax purposes, Massachusetts generally determines state gross income based on the Internal Revenue Code ("IRC") as amended and in effect on January 1, 2024.
The Massachusetts Department of Revenue published “TIR 26-4 which addresses the state income tax conformity with the federal limit increase tax exclusion of $7,500 implemented under the OBBBA for dependent care expenses.
TIR 26-4 stipulates that Massachusetts does not conform to the federal increased dependent care assistance tax exclusion amount of $7,500.
Consequently, only the first $5,000 of dependent care assistance expenses remains excludable from Massachusetts personal income tax wages.