A Dependent Care FSA lets you set aside pre-tax money to pay for childcare, adult day care, or elder care while you work

A Dependent Care FSA (also called a Dependent Care Account or DCA) is a workplace benefit that lets you put money into an account before taxes are taken out. You then use that money to pay for care services — usually childcare for children under 13, but also adult day care or elder care for a parent or other dependent. Because the money goes in before federal income tax, Social Security tax, and Medicare tax are calculated, you lower your taxable income and take home more money overall.

The account is offered through your employer's benefits plan, not through the government. Your employer sets it up, you decide how much to contribute each year during open enrollment, and the money comes out of your paycheck automatically. You submit receipts or invoices to the plan administrator to get reimbursed, or in some cases you use a debit card tied to the account.

Key Takeaways

  • You contribute pre-tax money through payroll deduction, which reduces the income tax and payroll taxes you owe.
  • The money covers childcare for children under 13, adult day care, preschool, after-school programs, and some elder care services — but not overnight camps or school tuition.
  • You must have a may have access to dependent and be working (or your spouse must be working) to use the account.
  • Unused money at the end of the year is forfeited under the "use-it-or-lose-it" rule, so you should estimate carefully what you will actually spend.
  • The annual contribution limit is set by the IRS and changes yearly; for 2024 it is $5,000 per household.

What expenses the account covers

A Dependent Care FSA pays for services that allow you to work. The most common use is childcare — daycare centers, in-home nannies, babysitters, preschool, and after-school programs all may have access to. The child must be under 13 years old (or older if disabled and unable to care for themselves).

The account also covers adult day care programs for an elderly parent, disabled spouse, or other dependent adult who lives with you. Some plans cover overnight camps if they are primarily for childcare rather than recreation, though this varies by plan. Elder care services — such as adult day centers or in-home aides — are covered if the person is your dependent and you are paying for care so you can work.

The account does not cover overnight camps that are mainly recreational, private school tuition, babysitting during evenings or weekends when you are not working, or care provided by a spouse or dependent. It also does not cover summer school, tutoring, or transportation to school.

How much you can contribute each year

The IRS sets an annual limit on how much you can put into a Dependent Care FSA. For 2024, the limit is $5,000 per household per year. If you are married and both spouses work, you still share a single $5,000 limit — it is not $5,000 per person.

You choose your contribution amount during your employer's open enrollment period, usually once a year. The money is deducted from your paycheck in equal installments throughout the year. If your circumstances change — you have a new child, your childcare costs drop, or you leave your job — you may be able to change your contribution mid-year, but this depends on your employer's plan rules.

If you do not use all the money by the end of the year, it is forfeited. This "use-it-or-lose-it" rule means you should estimate conservatively. Some employers offer a grace period of up to 2.5 months into the next year to spend the previous year's money, but this is optional and not all plans have it.

How to submit claims and get reimbursed

After you pay for childcare or dependent care out of pocket, you submit a claim to get reimbursed from your FSA. Most plans require you to submit an invoice or receipt showing the provider's name, the dates of service, the amount paid, and what type of care was provided. Some plans also require the provider's tax ID number or Social Security number.

You can usually submit claims online through your plan's website or mobile app, by mail, or by email — the method depends on your employer's plan administrator. Reimbursement typically takes one to two weeks after the plan receives your claim. Some employers offer a debit card tied to the account, which you can use to pay the provider directly without submitting a receipt afterward, though you may still need to provide documentation if the plan audits your account.

Tax savings and how they work

The main benefit of a Dependent Care FSA is the tax savings. If you contribute $5,000 to the account, that $5,000 is not counted as income for federal income tax, Social Security tax, or Medicare tax purposes. The amount you save depends on your tax bracket, but for someone in the 22% federal tax bracket, a $5,000 contribution saves roughly $1,100 in taxes per year.

You also avoid paying Social Security and Medicare taxes on the contribution, which adds another 7.65% in savings. So a $5,000 contribution could save you around $1,500 in total taxes, depending on your income level and state taxes. This is different from a tax credit, which you claim on your tax return — the FSA savings happen automatically through payroll deduction.

The use-it-or-lose-it rule and how to avoid losing money

Money left in your Dependent Care FSA at the end of the calendar year is forfeited. You cannot carry it over to the next year, and you cannot get it back as a refund. This rule exists because FSAs are designed to help you pay for current-year expenses, not to build savings.

To avoid losing money, estimate your childcare or dependent care costs for the coming year as accurately as you can. Add up what you actually spend on daycare, nannies, preschool, or adult day care in a typical year. If your costs vary — for example, you use full-time daycare in summer but part-time care during the school year — add them all up. Then contribute that amount, or slightly less if you are uncertain.

Some employers offer a grace period, which gives you until mid-March of the following year to spend the previous year's money. If your plan has this, you have more flexibility. Check your plan documents or ask your HR department whether your employer offers a grace period.

Who can use a Dependent Care FSA

To use a Dependent Care FSA, you must have a may have access to dependent and be working (or have a spouse who is working). A may have access to dependent is usually a child under 13, but can also be a spouse or parent who is disabled or unable to care for themselves, or an elderly parent who lives with you.

You must also be employed by a company that offers a Dependent Care FSA as part of its benefits plan. These accounts are not available to self-employed people or to employees of very small employers that do not offer FSA benefits. If your employer does not offer one, you cannot open a Dependent Care FSA on your own.

If you are married, your spouse must also be working (or actively looking for work) for you to contribute the full $5,000. If only one spouse works, the working spouse can contribute only up to the amount the non-working spouse earns, which is usually zero. There are exceptions for spouses who are disabled or full-time students, but these have specific rules.

Dependent Care FSA versus other childcare tax benefits

The federal government offers other ways to reduce the cost of childcare. The Child and Dependent Care Credit is a tax credit you claim on your tax return; it covers up to $3,000 in childcare expenses per year and gives you a credit of 20% to 35% of that amount, depending on your income. You cannot use both the FSA and the credit for the same expense — you have to choose which one saves you more money.

Some states also offer childcare subsidies or tax credits. A few states allow you to use both the FSA and a state credit, but most do not. Before you decide how much to contribute to your Dependent Care FSA, check whether you also may have access to for the federal credit or a state program, because using the FSA might disqualify you from the credit or reduce the amount you can claim.

Frequently Asked Questions

Can I use a Dependent Care FSA for overnight camp?

It depends on the camp's purpose. If the camp is primarily childcare — meaning it allows you to work — it may be covered. If it is mainly recreational or educational, it is not covered. Check with your plan administrator before you enroll your child, because the rules vary by plan.

What happens to my money if I leave my job?

You lose any money left in the account. When you leave your job, your FSA ends, and unspent funds are forfeited. You may be able to continue coverage through COBRA, but that is rare for FSAs and usually not worth the cost. Plan your contributions with the assumption that you will use the money before you leave.

Can I change my contribution amount during the year?

Only if you have a may have access to life event — birth of a child, change in childcare costs, loss of a job, or change in marital status. Your employer decides which events may have access to. Outside of these events, you are locked into your contribution for the year.

Do I have to report the reimbursements on my tax return?

No. The reimbursements are not taxable income, and you do not report them on your tax return. The tax benefit happens when the money goes into the account, not when you use it.

What if my childcare provider will not give me a receipt?

Most plans require a receipt to process your claim. If the provider will not give you one, ask your plan administrator what documentation they will accept. Some plans allow a signed statement from the provider instead. Without proof of the expense, the plan will likely deny your claim.