How the One Big Beautiful Bill Impacts Families with Paid Caregivers
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Poppins PayrollKey Takeaways
President Trump signed a sweeping new bill (dubbed the “One Big Beautiful Bill Act”) into law on July 4, 2025. It’s a broad piece of legislation that impacts many areas of American life, including families who are paying childcare employees over the table. Some of the benefits include increased FSA contribution limits and a variety of increased tax credits. Let’s dive into the details on the potential savings that you could see.
Potential savings for families from the ‘One Big Beautiful Bill’
There are two main ways families can see potential financial benefits from this new bill. First is increased tax breaks with the Child Tax Credit (CTC) and the Child and Dependent Care Tax Credit (CDCTC). The second is an increase in contribution limits for a Dependent Care Flexible Spending Account (DC FSA).
Child Tax Credit (CTC) limit increases
The CTC is a federal tax credit offered by the IRS to eligible parents and legal guardians of children. The CTC currently offers a potential tax savings of up to $2,000 per child. Under the new bill, this will increase to $2,200 per child starting in the 2025 tax year. The refundable portion of this will stay capped at $1,700. This means families will see an increase in how much they can lower their tax liability, but no increase in the amount that they can be refunded. Both of these values will be indexed for inflation, so we may see them change year over year.
The bill also introduces a new eligibility requirement to qualify for the Child Tax Credit. Currently, only the eligible dependent child needs a Social Security Number (SSN) to be eligible. The new legislation requires that both parents (if filing jointly) and the child must have valid SSNs. This could have a significant impact on immigrant or dual-status families.
Child and Dependent Care Tax Credit (CDCTC) rate increases
The CDCTC is a federal tax credit that exists to help eligible parents or legal guardians pay for childcare or care for other eligible dependents. Currently, the maximum credit allowed ranges from 20% to 35% of your care expenses, depending on your family’s adjusted gross income (AGI). The higher your AGI, the lower your maximum will be. The creditable amount is capped at $3,000 for one qualifying dependent or $6,000 for two or more qualifying dependents.
Starting in 2026, the new bill changes the rate range to 20%-50% of your care expenses. The creditable limit stays the same at $3,000 for one dependent/$6,000 for two or more. This means that many families, particularly those in the lower and middle ranges of AGI, may see an increase in the tax credit they can receive.
Dependent Care Flexible Spending Account (DC FSA) contribution limit increases
A Dependent Care Flexible Spending Account (DC FSA) is a great way to get reimbursed for qualified child and dependent care expenses, if your employer offers this benefit. DC FSAs allow you to use pre-tax funds for qualified expenses, such as after school programs and senior day care, giving you a tax benefit upfront. Per Poppins’ Head of Compliance Kwame Asare, that alone can result in savings of up to $2,475 in taxes, depending on your income and tax bracket.
Currently the maximum annual pre-tax contribution limit to a DC FSA is $2,500 for an individual and $5,000 for those who are married and file jointly. In 2026, under the new bill, this limit will increase to $3,750 for an individual and $7,500 for those who are married and file jointly. These new limits will enable families to save a lot more pre-tax dollars to go towards qualified dependent care expenses.
The One Big Beautiful Bill offers a few different avenues to get increased tax savings if you are a family paying over-the-table for care. This adds another to a long list of reasons it is beneficial to pay your household employees legally. Let’s dive into some details to take into account so you get the most savings possible, plus take a look at an example scenario.
Can you claim multiple tax credits for childcare expenses?
With these increases, it’s tempting to assume you can double up on savings, but there are some important limits to be aware of. The CDCTC is a tax credit for eligible child and dependent care expenses, and a DC FSA is a reimbursement account for eligible child and dependent care expenses. These are both great ways to save, but if you max out your DC FSA, you cannot claim both at the same time.
For example, if you have a DC FSA and plan to contribute the full $7,500 in 2026, you typically can’t claim the CDCTC because the CDCTC only applies to unreimbursed childcare expenses, and is capped at $3,000 for one child or $6,000 for two or more children. If your DC FSA already covers that much or more, there would be nothing left to claim under the credit.
Here is a quick scenario to illustrate your potential tax savings if you were to spend $10,500 per year on qualified childcare expenses while maxing out your DC FSA:
| Example scenario | One Child | Two or More Children |
| Total Childcare Expenses | $10,500 | $10,500 |
| DC FSA Contribution (Pre-Tax) | $7,500 | $7,500 |
| CDCTC Max Eligible Amount | $3,000 | $6,000 |
| Remaining Eligible Expenses | $0 (FSA already exceeds $3,000 cap) | $0 (FSA already exceeds $6,000 cap) |
| CDCTC Value | $0 | $0 |
| Estimated Total Tax Savings | ~$1,500 - $2,475 (DCFSA Only) | ~$1,500 - $2,475 (DCFSA Only) |
Keeping proper documentation
It’s important to remember that documentation rules are staying the same. This means that you must continue to file all appropriate caregiver payroll forms, including Schedule 8812 to claim the CTC and Form 2441 to claim the CDCTC or use a DC FSA.
To complete Form 2441 correctly you must keep detailed records of what you paid and to whom. This includes receipts or proof of payment for services, your caregiver’s full name, their address, and their SSN or EIN. You will then file Form 2441 with your family’s tax return to claim the CDCTC or report reimbursements from a DC FSA. If your family is using payroll services like Poppins Payroll to pay your nanny legally, this info is typically automatically tracked and generated.
Families who pay their caregivers through proper household payroll now have access to increased tax savings. It’s one more reason staying compliant isn’t just the right thing to do — it’s the smart thing, too.
With accurate pay records, thorough documentation, and timely tax filing, you unlock these benefits and protect the caregivers who support your family. That’s where Poppins comes in.
We’ll handle every paycheck, filing, and form so you can relax, knowing you’re compliant and making the most of new tax breaks. As our Head of Compliance puts it, “Compliance has always been important. Now, it’s financially rewarding, too.”
Disclaimer: This information is provided for general educational purposes and should not be considered tax, legal, financial, or HR advice. Poppins Payroll offers payroll services for household employers, but we do not provide professional advisory services. Household employment and caregiver compensation are subject to complex and evolving rules and regulations, which vary by state and program. Before acting on this information,, please consult a qualified tax professional or attorney for advice specific to your situation.
