Seyfarth Synopsis: On August 11, 2026, the Internal Revenue Service issued proposed regulations addressing nondiscrimination rules for dependent care assistance programs (“DCAPs”) under Section 129 of the Internal Revenue Code (the “IRC”). More than 45 years after DCAPs were enacted under IRC § 129, these proposed regulations provide long-awaited guidance on DCAP nondiscrimination testing and also address employer contributions and nondiscrimination rules for Trump Accounts. For additional information on Trump Accounts, see our blogs here and here.

Background:

A DCAP allows employees to pay eligible dependent-care expenses with pre-tax dollars. Employers may also contribute to an employee’s DCAP. For 2026, the maximum amount that may be excluded from an employee’s gross income is $7,500, or $3,750 for a married individual filing separately.

Eligible expenses generally include care for:

• A child under age 13; or
• A spouse or dependent who lives with the employee and is physically or mentally incapable of self-care

The proposed regulations confirm and elaborate on the four statutory nondiscrimination tests applicable to DCAPs:

• Contributions and benefits test
• Eligibility test
• Owner concentration test
• Average benefits test

For the first time, each test receives detailed regulatory guidance.