What a Dependent Care FSA Covers

A Dependent Care Flexible Spending Account (FSA) is an employer-sponsored account that lets you set aside pre-tax money to pay for childcare or adult dependent care. The money you contribute comes out of your paycheck before taxes are calculated, which lowers your taxable income for the year. You then use that account to reimburse yourself for care expenses you actually pay out of pocket.

The account covers care for children under age 13, as well as care for adults who are unable to care for themselves — including elderly parents, disabled spouses, or adult children with disabilities — but only if they live with you for more than half the year and depend on you for financial support.

Covered expenses include daycare centers, in-home nannies, preschool (but not K-12 tuition), summer day camps, and adult day programs. It does not cover overnight camps, school tuition for kindergarten and above, or babysitting for entertainment purposes. The care must enable you or your spouse to work or attend school full-time.

Key Takeaways

  • You choose how much to contribute each year during open enrollment, and that money is deducted from your paycheck before taxes, reducing what you owe the IRS.
  • You must submit receipts or invoices to your plan administrator to get reimbursed, and most plans require you to request reimbursement within 30 to 90 days of the expense.
  • Money left unspent at the end of the plan year is forfeited — there is no rollover to the next year — so estimate conservatively based on your actual care costs.
  • A Dependent Care FSA is separate from a Health Savings Account (HSA) and has its own contribution limit, which the IRS sets each year.
  • If your household income or care situation changes mid-year, you may be able to adjust your contribution amount during a may have access to life event.

How Much You Can Contribute

The IRS sets an annual limit on Dependent Care FSA contributions. For 2024, the limit is $5,000 per household per year (or $2,500 if you are married and file taxes separately). Your employer may set a lower limit, so check your plan documents.

You decide how much to contribute during your employer's open enrollment period, usually once a year. That amount is divided by the number of pay periods and deducted from each paycheck. Unlike a Health Savings Account, a Dependent Care FSA does not roll over — any money you do not use by the end of the plan year is forfeited. This is called the "use-it-or-lose-it" rule, so it is important to estimate your actual childcare or dependent care costs carefully.

If your household income or care needs change during the year — such as a child aging out of care, a job loss, or a change in your spouse's work schedule — you may be able to adjust your contribution mid-year. Your employer will tell you which life events may have access to and how to request the change.

How to Get Reimbursed

To receive money from your Dependent Care FSA, you must submit proof of the expense to your plan administrator. This usually means an invoice or receipt from the care provider showing the date, amount, and what the charge was for. Some providers, such as large daycare chains, may submit invoices directly to the plan.

Most plans require you to request reimbursement within 30 to 90 days of paying the expense. You typically submit a reimbursement form (often online through your employer's benefits portal) along with the receipt. The plan administrator reviews it and sends the money to your bank account or issues a debit card linked to the account.

Keep copies of all receipts and reimbursement requests for your records. If the IRS ever audits your return, you will need to show that the expenses were legitimate and that you actually paid them.

The Use-It-or-Lose-It Rule and How to Avoid It

Any money remaining in your Dependent Care FSA at the end of the plan year is forfeited. Unlike a Health Savings Account, which rolls over indefinitely, a Dependent Care FSA does not allow you to carry unused funds into the next year. This makes it critical to estimate your care costs accurately when you choose your contribution amount.

To avoid losing money, track your actual childcare or dependent care spending for a few months before open enrollment. Add up what you pay monthly and multiply by 12. If your costs vary — for example, you use full-time daycare during the school year but part-time care in summer — calculate the total for the full year. Be conservative: it is better to contribute less and pay some expenses out of pocket than to forfeit unused money.

If you know your care situation will change mid-year — such as a child starting kindergarten or a parent moving into a facility — you can request a mid-year adjustment to lower your contribution. This prevents you from overfunding the account.

Dependent Care FSA vs. Child and Dependent Care Tax Credit

You cannot claim the same expense twice. If you use a Dependent Care FSA, you cannot also claim that same expense on your tax return using the Child and Dependent Care Tax Credit. You must choose one or the other.

For most households, the FSA saves more money because the contribution reduces your taxable income, whereas the tax credit is a smaller percentage of the expense and phases out at higher incomes. However, if your income is very high or your care costs are low, the tax credit might be better. Speak with a tax professional to compare both options for your situation.

If you do not have access to a Dependent Care FSA through your employer, you can still claim the tax credit on your return. The credit covers up to $3,000 of care expenses per year for one dependent, or $6,000 for two or more dependents, and reimburses you for a percentage of that amount based on your income.

What Happens If You Change Jobs or Leave Your Employer

If you leave your job or your employer ends the Dependent Care FSA plan, you lose access to any unused money in the account. The funds do not transfer to a new employer's plan, and you cannot roll them over into a personal savings account. This is another reason to estimate conservatively and not over-contribute.

If you change jobs mid-year, you may be able to continue contributing to your old employer's plan through COBRA (Consolidated Omnibus Budget Reconciliation Act), though you will pay the full premium yourself. More commonly, you will simply lose the account and any remaining balance. Your new employer may offer its own Dependent Care FSA, and you can enroll during their open enrollment period or if you have a may have access to life event.

Frequently Asked Questions

Can I use my Dependent Care FSA for overnight camps or school tuition?

No. Overnight camps and K-12 school tuition are not covered. The account covers only day care that allows you to work or attend school. Preschool is covered, but once a child enters kindergarten, tuition is not. Summer day camps that run during work hours are covered.

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

You forfeit it. The use-it-or-lose-it rule means unused money does not roll over. Some employers offer a grace period of up to 2.5 months into the next year to submit claims for the prior year, but the money itself is gone. This is why estimating your actual costs carefully is important.

Can I claim both a Dependent Care FSA and the Child and Dependent Care Tax Credit?

No. You must choose one. If you use the FSA, you cannot claim the tax credit for the same expenses. For most people, the FSA saves more money because it reduces your taxable income, but compare both options or consult a tax professional for your situation.

What counts as a may have access to dependent for this account?

Children under age 13 and adults who are unable to care for themselves and live with you for more than half the year. This includes elderly parents, disabled spouses, and adult children with disabilities, as long as they depend on you for financial support and you claim them as dependents on your tax return.

Can I adjust my contribution mid-year if my care costs change?

Yes, but only if you have a may have access to life event, such as a child aging out of care, a change in your spouse's work schedule, or a job loss. You must request the change within 30 to 60 days of the event. Contact your employer's benefits administrator to find out which events may have access to and how to request an adjustment.