Using a Dependent Care FSA
A Dependent Care FSA lets you pay for childcare with pre-tax dollars, saving up to $1,100+ annually. Here's how to make the most of this benefit.
What Is a Dependent Care FSA?
A Dependent Care Flexible Spending Account (also called DCFSA or Dependent Care FSA) is an employer-sponsored benefit that lets you set aside pre-tax money from your paycheck to pay for eligible childcare expenses. Because the money is pre-tax, you save on federal income tax, state income tax (in most states), and FICA taxes (Social Security and Medicare).
The Savings Math
If you contribute the maximum $5,000 and your combined tax rate is 22% federal + 7.65% FICA + ~5% state = ~35%:
$5,000 × 35% = $1,750 in annual tax savings
Key Facts
- Maximum contribution: $5,000 per household (or $2,500 if married filing separately)
- Enrollment: During open enrollment or after a qualifying life event (new baby, marriage, etc.)
- Use-it-or-lose-it: Funds typically must be used by year-end (some plans offer a grace period or limited rollover)
- Reimbursement: You pay for care, then submit receipts to get reimbursed from your FSA
What Qualifies as Dependent Care?
Eligible Expenses
- • Daycare centers (licensed)
- • Home daycare providers
- • Nanny or babysitter wages
- • Before/after school care
- • Summer day camps
- • Preschool programs
- • Au pair childcare costs
NOT Eligible
- • Overnight camps
- • Private school tuition (K-12)
- • Food, clothing, entertainment
- • Late pickup fees
- • Registration or activity fees
- • Care by a spouse or child under 19
- • Healthcare expenses (use Health FSA)
Eligibility Requirements
Your Employer Offers It
Not all employers offer a Dependent Care FSA. Check with HR during open enrollment.
Child Under 13
Dependent must be under 13 (or any age if physically or mentally incapable of self-care).
Both Parents Work
Both you and your spouse must work, be looking for work, or be full-time students.
Care Enables Work
The childcare must be so you (and spouse) can work or look for work.
How Much Should You Contribute?
Estimate your childcare costs carefully. Because of the use-it-or-lose-it rule, you don't want to over-contribute.
Calculate Your Annual Childcare Costs
Important Timing Note
Unlike a Health FSA, you can only be reimbursed up to what you've contributed so far. If you have a big expense in January but you've only contributed $400, you can only get reimbursed $400 until more contributions accumulate.
FSA vs Tax Credit: Which Is Better?
It depends on your income and tax rate, but for most families, the FSA saves more:
Example: $5,000 × 35% = $1,750 saved
Example: $6,000 × 20% = $1,200 saved
Good news: You can use both! Use FSA first, then claim the tax credit on remaining expenses.
Calculate Your Savings
See exactly how much you'll save with FSA and tax credits combined.
Open Tax Savings CalculatorStep-by-Step: Using Your FSA
Enroll During Open Enrollment
Choose your annual contribution amount. Money is deducted equally from each paycheck.
Pay for Eligible Care
Pay your daycare provider as normal. Keep receipts and statements.
Submit Claims for Reimbursement
File claims through your FSA administrator (often online). Attach receipts showing dates, provider, and amount.
Receive Reimbursement
Get money back via direct deposit or check, typically within 1-2 weeks.
Common Mistakes to Avoid
Contributing Too Much
If you over-contribute and don't use the funds, you lose them. Be conservative in your estimate, especially if your childcare situation might change mid-year.
Missing the Enrollment Window
You can only enroll during open enrollment or within 30 days of a qualifying life event (new baby, marriage, job change). If you miss it, you wait until next year.
Paying Ineligible Providers
Care provided by your spouse, your child under 19, or a claimed dependent doesn't qualify. Neither does care by someone you don't report as income (paying under the table).
Not Saving Receipts
Keep all receipts showing provider name and Tax ID, dates of service, and amounts paid. The IRS can audit FSA claims, and you'll need documentation.
Forgetting Year-End Deadlines
Know your plan's deadline for incurring expenses (often December 31) and submitting claims (often March 31 of the following year). Check with your plan administrator.
Special Situations
Two Working Spouses with FSA Access
The $5,000 limit is per household, not per parent. Even if both spouses have FSA access through their employers, the combined contribution cannot exceed $5,000. Coordinate to decide who contributes.
Tip: Contribute through the higher-earning spouse if one has a significantly higher tax rate—the savings will be greater.
Married Filing Separately
If married filing separately, each spouse's maximum is $2,500. In most cases, filing jointly is more beneficial for families with childcare expenses.
Mid-Year Job Change
If you leave your job, you typically forfeit unused FSA funds (unlike a Health FSA, which may have COBRA options). However, a job change is a qualifying life event—you can enroll in your new employer's FSA within 30 days.
Strategy: Submit claims for expenses you've already incurred before your last day. Time your last daycare payment if possible.
Child Turns 13 Mid-Year
Expenses are only eligible while your child is under 13. If your child turns 13 in July, you can only claim expenses from January through their birthday. Adjust your contribution accordingly.
Non-Working Spouse
If one spouse doesn't work, you generally can't use a Dependent Care FSA—the expense must enable both parents to work. Exceptions: full-time student (considered working for 5 months) or spouse physically/mentally incapable of self-care.
Using FSA and Tax Credit Together
You can use both the Dependent Care FSA and the Child and Dependent Care Tax Credit—but not on the same expenses. Here's how to maximize both:
Example: One Child, $12,000/year childcare
Note: FSA savings vary by tax bracket. This example assumes ~30% combined tax rate.
Documentation You'll Need
Keep organized records throughout the year. You'll need:
For Each Claim
- • Provider name and address
- • Provider Tax ID number or SSN
- • Dates of service
- • Amount paid
- • Receipt or statement
At Year End
- • Signed provider statement (some plans require)
- • Year-end statement from daycare
- • Total amount paid for the year
- • Provider's Tax ID for your tax return
Frequently Asked Questions
Is a Dependent Care FSA worth it if I only pay $3,000/year in childcare?
Yes, just contribute $3,000 instead of the max. You'll save your marginal tax rate (often 25-35%) on that amount. At 30%, that's $900 in savings. Make sure you'll actually spend it—underestimate slightly to avoid forfeiting funds.
Can I use FSA funds for preschool?
Yes, if the preschool is primarily for childcare (not education). Most preschool programs for children under kindergarten age qualify. Even if there's an educational component, as long as the program is enabling you to work, it's generally eligible. Private school tuition for kindergarten and above does not qualify.
What about summer camp?
Day camps are eligible. Overnight camps are not. If your child attends a day camp while you work during summer, those expenses qualify. Sports camps, art camps, and enrichment programs count as long as they're day programs.
Can I pay my mom to babysit and use FSA funds?
Yes, with conditions. You can pay a relative (including parents) for childcare and use FSA funds if: (1) they are not your dependent, (2) you report their income to the IRS (they'll need to pay taxes on it), and (3) the arrangement meets standard FSA requirements. You'll need their Social Security number for your tax return.
What happens to my FSA if I have a baby mid-year?
A new baby is a qualifying life event that allows you to change your FSA contribution within 30 days. You can enroll if you weren't already, or increase your contribution. This is separate from your annual open enrollment.
Does my daycare need to be licensed?
The provider doesn't have to be licensed, but they must provide their Tax ID or Social Security number. This is how the IRS tracks that care is legitimate. License-exempt home daycares qualify, but you still need the provider's tax information.
Can I use FSA for before/after school care?
Yes. Before-school care, after-school care, and extended day programs qualify as dependent care expenses. This applies even for school-age children (under 13) during the school year.
What if I work part-time?
You can still use a Dependent Care FSA. The childcare must enable you to work—so expenses during your work hours qualify. If you work 20 hours a week, childcare for those 20 hours is eligible. The key is that the care must be work-related, not convenience-related.
Is there a grace period or rollover for unused funds?
Some plans offer a 2.5-month grace period into the following year to incur expenses, or allow up to $500 to roll over. However, many Dependent Care FSAs are strict use-it-or-lose-it. Check your specific plan documents or ask HR about your plan's rules.
Can both parents use their employer's FSA?
Only one parent should use a Dependent Care FSA, or you can split between both, but the combined household maximum is $5,000. If you both contribute $3,000, you've exceeded the limit and will face tax penalties. Coordinate so your total doesn't exceed $5,000.
The Bottom Line
A Dependent Care FSA is one of the most valuable tax benefits for working parents. By contributing pre-tax dollars, you save on federal income tax, state income tax, and FICA taxes—often a combined savings of 30-40% of your contribution.
The key is to estimate your childcare costs carefully and contribute the right amount. Err on the side of underestimating slightly—unused funds are forfeited.
For most families with income over $50,000, maxing out the $5,000 FSA is a better deal than relying solely on the Child and Dependent Care Tax Credit. You can use both on different expenses for maximum savings.
Check with your HR department during open enrollment, keep good records throughout the year, and submit claims promptly. The savings add up to over $1,000 annually for most families—that's real money back in your pocket.