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!