DCAP Nondiscrimination Test

By Forrest Baumhover, CFP®, EA · Last verified September 13, 2026

Run the ratio percentage, 55% average benefits, and 25% owner concentration tests against your dependent care assistance program (DCAP) — free, per the proposed REG-101355-26 rules, with the $7,500/$3,750 IRC §129(a)(2)(A) limits built in.

Total employee count

Highly compensated employee (HCE) count

NHCEs eligible to participate

HCEs eligible to participate

Count only employees who are not excluded: leave out employees under age 21 or with less than one year of service (if the plan lets no one in early), and union employees not in the plan whose union bargained in good faith over dependent care benefits (proposed §1.129-2(f)).

Testing against the married-filing-separately ($3,750) exclusion limit

Benefiting participants (used for the 55% average benefits test)

Enter every participant who is actually benefiting under the plan (not merely eligible), with the benefit amount paid to each. If the plan makes employees wait until age 21 and one year of service to join, leave out the employees who have not met those requirements, but only if the plan lets no one in early (IRC §129(d)(9)(A); IRC §410(b)(4)(A)(ii)). Also leave out union employees not in the plan whose union bargained in good faith over dependent care benefits (IRC §129(d)(9)(B)). For benefits paid through salary reduction, you may also leave out anyone paid under $25,000 (IRC §129(d)(8)(B)).

Name/label

Benefit amount ($)

HCE

Name/label

Benefit amount ($)

HCE

More-than-5% owners and their spouses or dependents (used for the 25% owner concentration test)

Enter each more-than-5% owner, and each such owner’s spouse or dependent, who receives benefits under the plan; for a spouse or dependent, enter the owner’s ownership %. Leave this empty if none of them does.

Common Questions

What is a DCAP nondiscrimination test?

A dependent care assistance program (DCAP) — often called a dependent care FSA — cannot disproportionately favor highly compensated employees (HCEs) or more-than-5% owners. This tool runs the three tests proposed for that purpose under REG-101355-26 against your own employee counts and benefit amounts.

Is REG-101355-26 final?

No. REG-101355-26 (91 FR 51611) is a PROPOSED Treasury regulation, published August 11, 2026, and is not yet final as of this tool’s publication. The IRS may change these rules before finalizing them — treat a result from this tool as a reading of the proposed rule, not a settled determination. The preamble lets taxpayers rely on the proposed rules for plan years that begin before final regulations publish (91 FR 51611).

What is the 55% average benefits test?

IRC §129(d)(8) is a separate, mandatory nondiscrimination rule — not an alternative to the ratio percentage test, and not optional if the ratio percentage test already passes. It requires that the average dependent care benefit paid to benefiting NHCEs, divided by the average benefit paid to benefiting HCEs, be at least 55%. REG-101355-26 would count in each average only the employees who receive more than zero benefits during the plan year. That changes how an employer computes the test, not whether the plan must meet it.

What are the DCAP exclusion limits this tool uses?

This tool tests against the $7,500 exclusion limit ($3,750 for a married-filing-separately return) under IRC §129(a)(2)(A).

Is this tool free?

Yes. It is free to use, with no signup required. This tool does not include a paid certificate or EA sign-off feature.

More from the Desk

More practitioner writing from Forrest Baumhover, CFP®, EA at The Federal Tax Desk on Substack.

Sources

IRC §129(d) — Dependent care assistance program requirements

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