You can contribute between $130 and $5,000 (or $2,500 if you and your spouse file separate income tax returns) in your Dependent Care Flexible Spending Account (DCFSA). This account lets you set aside money to pay dependent care expenses that are necessary for you (and your spouse, if you are married) to work or attend school full-time. Qualified dependent care expenses must meet IRS rules listed below.
See some eligible and ineligible expenses below. See the FSA list of eligible and ineligible expenses.
- Home or day care for dependent children under age 13 – including Back Up Care
- Payments made to a licensed nursery day care or day care center for preschool children
- Home or day care for dependents of any age who are mentally or physically disabled and are unable to care for themselves
- Expenses for days you are not working, including sick leave or vacation days
- Child care services provided by another of your dependent children
- Expenses you already claimed as deductions or credits on a federal or state income tax return
Choosing DCFSA or Childcare Tax Credit
Qualified dependent care expenses must meet these IRS requirements:
- A federal tax credit is available for the same types of dependent care expenses that can be reimbursed through the DCFSA.
- You cannot use both the tax credit and DCFSA for the same expenses.
- There are several factors that may affect whether the DCFSA or the tax credit will save you more money. You may want to discuss your situation with a qualified tax advisor before deciding.
- If you are married, both you and your spouse must be working. Spouses who do not work must be full-time students or incapable of caring for themselves.
- If you are married, the total annual amount you deposit cannot be more than the lower of your income or your spouse’s income.
- If you are single, your dependent day care expenses must be necessary for you to work.