Save Money by Claiming Eligible Expenses for Your Dependent Care FSA Account
The Dependent Care Flexible Spending Account (Dependent Care FSA) is a valuable benefit offered by many employers that allows you to save money by putting aside pre-tax dollars from your paycheck to pay for eligible expenses related to dependent care.
Since Dependent Care FSA contributions are made with pre-tax dollars, your overall taxable income is reduced. This can result in significant tax savings, especially if you're in a higher tax bracket.
To illustrate, let's say your combined federal, state, and payroll tax rate is 30%, and you contribute a maximum of $5,000 to your Dependent Care FSA. This would result in a tax savings of $1,500 for the year ($5,000 x 30%).
Simply put, that’s $1,500 of your own money going toward child care and other dependent care eligible expenses instead of to the government!
Make the most of your Dependent Care FSA
Max out your contribution: For 2024, you can contribute up to $5,000 per year if you're married and file jointly or if you're a single parent. If you're married but file separately, the limit is $2,500.
Don’t forfeit your contributions: If you don't use all the funds by the end of the year (or grace period, if offered), you may lose the remaining balance. Give a think to how much dependent care support you will need for the calendar year before committing to a contribution amount. With the rising cost of childcare, chances are, you won’t have a problem maxing out your Dependent Care FSA contribution.
Make eligible expenses: While your Dependent Care FSA funds can be used for work-related dependent care expenses for children under 13 or for adults who are physically or mentally incapable of self-care, you will need to provide payment documentation to claim the expense.
What is an eligible expense?
Eligible expenses related to dependent care include:
Babysitters. Note that the care provider must be IRS-compliant (i.e., they report your payment and file taxes) and not a family member such as your spouse or a child under 19 years old.
Daycare centers
nursery schools
after-school programs or activities that occur after school hours
Summer day camps. (note overnight camps do not qualify)
Elder care services: If you have an adult dependent who cannot care for themselves due to physical or mental limitations, expenses for elder custodial care or adult daycare are eligible.
Transportation services: Costs related to transporting dependents to and from eligible care providers may also be covered.
Are you signed up for a Dependent Care Flexible Spending Account?
Check if your employer offers a Dependent Care FSA benefit. You can opt-in either during your company's open enrollment period or after a qualifying life event, such as the birth of a child.
If your company doesn’t offer a Dependent Care FSA, you can still take advantage of the Child and Dependent Care Tax Credit during your tax filing. In either case, keep good records and receipts!