What a dependent care FSA does

A dependent care flexible spending account (often called a dependent care FSA or DCFSA) is a way to set aside pre-tax money from your paycheck to pay for childcare or adult care expenses. You decide how much to contribute each year, your employer deducts that amount from your pay before taxes are taken out, and you use the money to reimburse yourself for care costs you actually paid.

The main benefit is the tax savings. Because the money comes out before federal income tax, Social Security tax, and Medicare tax are calculated, you pay less in taxes overall. If you spend $5,000 a year on childcare anyway, a dependent care FSA means you don't pay income tax on that $5,000 — which can save you $1,000 to $1,500 depending on your tax bracket.

This is different from a health savings account (HSA) or a medical FSA. Those accounts pay for medical expenses. A dependent care FSA only covers the cost of care itself — the person watching your child or aging parent while you work or attend school.

Key Takeaways

  • You contribute pre-tax money to a dependent care FSA through payroll deductions, which lowers your taxable income and the taxes you owe.
  • The account covers childcare, preschool, after-school programs, and adult day care — any care that lets you work or study full-time.
  • You must use the money within the plan year or lose it; there is no rollover to the next year, though some employers offer a short grace period.
  • You set your contribution amount once a year during open enrollment, and you can only change it if your family situation changes (birth, job loss, change in care costs).
  • You pay the care provider out of pocket first, then submit receipts to your plan to get reimbursed from your FSA account.

What expenses the account covers

A dependent care FSA covers the cost of care for anyone you claim as a dependent on your taxes, as long as the care allows you to work or study full-time. This includes your own children, stepchildren, foster children, and your spouse's children if you claim them as dependents. It also covers care for an aging parent or other adult relative you support, if you claim them as a dependent.

may be able to access care includes daycare centers, in-home nannies, babysitters, preschool, after-school programs, summer day camps, and adult day care facilities. The key is that the care must be for a dependent, and it must happen while you are working or in school full-time.

The account does not cover school tuition (even if the school provides childcare), overnight camps, or care during times you are not working. It also does not cover care for a spouse, even if your spouse is disabled — only for dependents.

How much you can contribute

The IRS sets a yearly 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 filing jointly, or if you are single or married filing separately. Some employers set their own lower limits, so check your plan documents.

You choose your contribution amount once a year during your employer's open enrollment period, usually in the fall. The money is deducted from your paycheck in equal amounts throughout the year. If your circumstances change — you have a baby, your childcare costs go up, you lose your job, or your spouse's job situation changes — you can adjust your contribution mid-year, but only if the change qualifies under IRS rules.

It is important to estimate carefully. Money left in the account at the end of the plan year is forfeited — you cannot roll it over to the next year. Some employers offer a grace period of up to 2.5 months into the next year to spend remaining funds, but this is optional and not all plans have it.

How to use the account and get reimbursed

You pay your childcare provider or adult care facility directly out of your own pocket. Keep receipts and invoices showing the provider's name, the dates of care, and the amount you paid. At the end of each month (or whenever you have paid out-of-pocket), you submit a reimbursement request to your plan administrator along with your receipts.

Most plans let you submit requests online through a website or mobile app. Some still require paper forms mailed in. The plan administrator reviews your request to make sure the expense is may be able to access, then reimburses you by check, direct deposit, or debit card — usually within one to two weeks.

Some employers offer a dependent care FSA debit card that you can use directly at certain providers, so you do not have to pay out of pocket and wait for reimbursement. Ask your plan administrator whether your plan offers this option.

The "use it or lose it" rule and how to plan around it

Any money left in your dependent care FSA at the end of the plan year is forfeited. You cannot carry it over to the next year, and you cannot get a refund. This is called the "use it or lose it" rule, and it is set by federal law.

Because of this rule, you need to estimate your childcare costs carefully. If you think you will spend $4,000 on care next year, contribute $4,000. If you contribute $5,000 but only spend $3,500, you lose $1,500. Some employers offer a grace period (usually 2.5 months into the next year) to spend remaining funds, but you cannot count on this — check your plan documents.

One strategy is to contribute a slightly lower amount than you think you will spend, so you are less likely to lose money. Another is to front-load larger expenses early in the year if you know they are coming — for example, if you pay for a summer camp in June, you can submit that receipt in June rather than waiting until later in the year.

How a dependent care FSA differs from other options

If you do not have access to a dependent care FSA through your employer, or if you want to save more than the FSA limit allows, you may be able to claim the child and dependent care credit on your tax return. This credit reduces your taxes owed, but it is not as valuable as an FSA because you pay the care provider with after-tax money first, then claim a credit later. With an FSA, you avoid taxes on the money upfront.

Some states and employers also offer backup childcare services or subsidized care programs. These are separate from an FSA and may be worth exploring if your FSA contribution limit is too low for your needs.

A dependent care FSA is also different from a health savings account (HSA) or medical FSA. Those accounts are for medical expenses only. You cannot use dependent care FSA money for medical costs, and you cannot use medical FSA money for childcare.

What happens if you leave your job

If you leave your job before the end of the plan year, you lose access to your dependent care FSA. Any money remaining in the account is forfeited — your employer does not refund it to you. This is true even if you leave because of a layoff or medical reason.

If you move to a new job that offers a dependent care FSA, you can start a new account with your new employer. There is no waiting period, and you can contribute up to the annual limit in your new plan. However, your contribution amounts do not carry over — you will need to enroll in the new plan during its open enrollment period, or if you have a may have access to life event (like a job change), you may be able to enroll right away.

If you are between jobs or move to a job without a dependent care FSA, you can look into the child and dependent care credit on your tax return for that year, or explore state and local childcare subsidy programs.

Frequently Asked Questions

Can I use dependent care FSA money for my nanny's taxes or benefits?

No. The FSA covers only the cost of care itself. If you pay a nanny, you can use FSA money for her wages, but not for payroll taxes, workers' compensation insurance, or benefits you provide. Those are employer costs, not care costs.

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

Your plan administrator will likely reject the reimbursement request without a receipt. Ask your provider for an invoice or receipt showing the dates of care and the amount paid. If the provider refuses, you may not be able to use FSA money for that expense. This is why it is important to choose providers who keep records.

Can I change my contribution amount mid-year?

Only if you have a may have access to life event: birth or adoption of a child, significant change in childcare costs, loss of childcare, change in your spouse's employment, or divorce. A straightforward change of mind is not enough. Contact your plan administrator to find out whether your situation qualifies.

What if I estimate wrong and run out of money before the year ends?

You will have to pay for remaining childcare out of pocket with after-tax money. You cannot add more money to your FSA mid-year unless you have a may have access to life event. This is another reason to estimate conservatively.

Can my spouse and I each have a dependent care FSA?

No. The household limit of $5,000 per year applies to both of you combined, not each. If you are both employed and both have access to a dependent care FSA, you must decide together how to split the $5,000 limit between the two plans.