A Dependent Care FSA pays for childcare costs using money you set aside before taxes are taken from your paycheck

A Dependent Care FSA (also called a Dependent Care Account or DCA) is a workplace account where you contribute pre-tax dollars to cover childcare and adult care expenses. Your employer deducts the money from your paycheck before federal income tax, Social Security tax, and Medicare tax are calculated, which lowers your taxable income for the year. You then use the account balance to pay for care services that let you work or attend school.

The account works differently from a Health Savings Account or regular FSA because it covers care services rather than medical expenses. You choose how much to contribute each year during your employer's open enrollment period, and that money sits in the account until you use it to pay for covered care.

Key Takeaways

  • You contribute pre-tax money to a Dependent Care FSA during open enrollment, and your employer deducts it from your paycheck before taxes.
  • The money covers childcare, preschool, after-school programs, summer camps, and adult day care — any service that lets you work or study.
  • The annual contribution limit is set by the IRS and changes each year; for 2024 it is $5,000 for married couples filing jointly and $2,500 for single filers and married couples filing separately.
  • You must submit receipts or invoices to your plan administrator to get reimbursed, and any money you do not use by the end of the year is forfeited.
  • If your life changes — you have a new child, change jobs, or your spouse starts working — you can change your contribution amount outside of open enrollment.

What expenses a Dependent Care FSA covers

A Dependent Care FSA pays for care services that allow you to work, look for work, or attend school full-time. The person being cared for must be your dependent — typically a child under age 13, though it can also cover care for an adult dependent who cannot care for themselves.

Covered expenses include daycare centers, in-home nannies, preschool tuition (but not kindergarten and above), after-school programs, summer day camps, and adult day care facilities. The care must be provided by someone other than your spouse or a dependent you claim on your taxes. If you pay a nanny or babysitter directly, they must have a Social Security number or Individual Taxpayer Identification Number (ITIN).

Expenses that do not may have access to include overnight camps, school tuition for kindergarten through 12th grade, babysitting for social outings, transportation costs, and food or clothing. If you are unsure whether a specific expense qualifies, check your plan's summary of benefits or contact your plan administrator.

How much you can contribute each year

The IRS sets an annual limit on how much you can contribute to a Dependent Care FSA. For 2024, the limit is $5,000 per year for married couples filing jointly and $2,500 per year for single filers and married couples filing separately. The limit may change each year, so check with your employer or plan administrator at the start of each open enrollment period.

Your employer may also set a lower limit than the IRS maximum, so review your plan documents to see what your specific workplace allows. If you are married and both spouses work, each employer's plan has its own limit, but your combined contributions across all plans cannot exceed the IRS maximum for your filing status.

How to submit expenses and get reimbursed

To use the money in your account, you submit receipts or invoices to your plan administrator and request reimbursement. Most plans require you to submit the original receipt showing the provider's name, the dates of care, the amount charged, and what service was provided. Some plans accept digital submissions through a mobile app or online portal; others require paper forms mailed or faxed in.

The reimbursement timeline varies by plan. Some plans reimburse within one to two weeks; others may take longer. Keep copies of all receipts and reimbursement confirmations for your tax records, since the IRS may ask for documentation if you are audited.

If your plan uses a debit card, you may be able to swipe it directly at the provider instead of submitting receipts afterward. However, you still need to keep receipts to prove the expense was may be able to access if the plan administrator asks.

The use-it-or-lose-it rule and what happens to unused money

Money in a Dependent Care FSA that you do not use by the end of the plan year is forfeited — you cannot roll it over to the next year or get it back as a refund. This is called the use-it-or-lose-it rule, and it applies to most Dependent Care FSAs. Some plans offer a grace period of up to 2.5 months into the next year to submit claims for expenses from the previous year, but the money itself does not carry over.

Because of this rule, you should estimate your childcare costs carefully before you choose your contribution amount. If you overestimate and do not use all the money, you lose it. If you underestimate, you will have to pay for care out of pocket with after-tax dollars.

If your life changes during the year — you have a new child, your childcare costs increase, or you stop working — you may be able to change your contribution amount. These changes are called may have access to life events, and they include birth or adoption of a child, a significant change in childcare costs, and a change in your employment status.

How a Dependent Care FSA affects your taxes

Contributing to a Dependent Care FSA reduces your taxable income because the money comes out of your paycheck before federal income tax is calculated. This means you pay less in federal income tax for the year. The contribution also reduces the amount of Social Security and Medicare tax you owe.

However, the tax benefit is limited by the Dependent Care Credit, a separate tax credit you can claim on your tax return. You cannot use both the FSA and the credit for the same expenses — you must choose which one gives you the larger tax benefit. In most cases, the FSA provides a bigger benefit because it reduces your taxable income, but your tax situation is unique, so you may want to discuss this with a tax professional.

When you file your taxes, you do not report the expenses you paid with FSA money. Your employer reports your FSA contributions on your W-2 form, and the IRS knows the money was set aside for dependent care.

What happens to your account if you leave your job

If you leave your job, you lose access to your Dependent Care FSA. Any money remaining in the account is forfeited — your employer does not refund it, and you cannot transfer it to a new employer's plan. This is true even if you leave partway through the year.

If you move to a new job that offers a Dependent Care FSA, you can enroll in that plan during your new employer's open enrollment period or within 30 days of your hire date, depending on the employer's rules. You will start fresh with a new contribution amount and a new account balance.

If your new employer does not offer a Dependent Care FSA, you may be able to claim the Dependent Care Credit on your tax return for childcare expenses you pay out of pocket. This credit is worth up to $3,000 in expenses per year, depending on your income and filing status.

Frequently Asked Questions

Can I use my Dependent Care FSA to pay for my child's school tuition?

No, not for kindergarten through 12th grade. School tuition is not a covered expense. However, you can use the account for preschool tuition, after-school programs, and summer day camps. If your school offers before-school or after-school childcare as a separate service with its own charge, that portion may be covered.

What if I do not use all the money in my account by the end of the year?

Any unused money is forfeited under the use-it-or-lose-it rule. Some plans offer a grace period of up to 2.5 months into the next year to submit claims for expenses from the previous year, but the money itself does not roll over. You should estimate your childcare costs carefully when you choose your contribution amount.

Can I change my contribution amount during the year?

Yes, but only if you have a may have access to life event, such as the birth or adoption of a child, a significant change in childcare costs, or a change in your employment status. You must request the change within 30 to 60 days of the event, depending on your plan. Contact your plan administrator to find out the exact important date.

Do I need to provide my childcare provider's tax information to use my FSA?

If you pay a nanny or babysitter directly, yes — they must have a Social Security number or Individual Taxpayer Identification Number (ITIN). If you use a daycare center or preschool, they typically already have this information on file. Your plan administrator can tell you what documentation is required.

What is the difference between a Dependent Care FSA and the Dependent Care Credit?

Both reduce the cost of childcare, but in different ways. The FSA uses pre-tax money from your paycheck, which lowers your taxable income. The credit is claimed on your tax return and reduces the tax you owe. You can use one or the other, but not both for the same expenses. The FSA usually provides a larger benefit, but your tax situation determines which is better for you.