How a Dependent Care FSA Lets You Pay for Childcare With Pre-Tax Money

What a Dependent Care FSA Does

A Dependent Care FSA lets you set aside money from your paycheck before taxes are taken out, then use that money to pay for childcare or adult care expenses. Your employer deducts your contribution from your gross pay, which lowers your taxable income for the year. You then submit receipts to your FSA plan administrator and get reimbursed from your account.

The main benefit is the tax savings. If you contribute $5,000 to a Dependent Care FSA and you're in the 22% federal tax bracket, you save roughly $1,100 in federal taxes alone — plus state and payroll taxes in most states. That's money you would have spent on childcare anyway, just without the tax hit.

The trade-off is the use-it-or-lose-it rule. Money you don't spend by the end of the plan year (usually December 31) goes back to your employer. There is a grace period option — some plans let you carry over up to $610 into the next year — but this varies by employer. You need to estimate carefully how much childcare you'll actually pay for.

Key Takeaways

• You contribute pre-tax money through payroll deduction, which reduces your federal, state, and payroll taxes.
• You can use the money only for childcare, preschool, after-school care, adult day care, or summer camp — not for school tuition or overnight camps.
• You must submit receipts and claim forms to get reimbursed; the money doesn't automatically pay your provider.
• Unused money at the end of the year is forfeited unless your plan offers a grace period, so you must estimate your childcare costs accurately.
• Your annual contribution limit is set by federal law and changes each year; for 2024 it is $5,000 for married couples filing jointly and $2,500 for single filers.

What Expenses You Can and Cannot Cover

Dependent Care FSA money covers the cost of childcare while you and your spouse (if married) are both working or in school. This includes daycare centers, in-home nannies, babysitters, preschool, and before- or after-school programs. It also covers adult day care for an elderly parent or disabled family member if that care allows you to work.

The expense must be for someone you claim as a dependent on your tax return, and the care must happen so you can work — not for entertainment or vacation. Summer camps that include childcare during work hours count; overnight camps do not. School tuition, even for preschool, is not covered by a Dependent Care FSA (though a 529 education savings plan or Coverdell ESA may help with that separately).

You also cannot use Dependent Care FSA funds to pay a spouse for childcare, even if your spouse stays home. The IRS does not allow you to reimburse family members for dependent care.

How to Set Up and Contribute

You enroll in a Dependent Care FSA during your employer's open enrollment period, usually once a year in the fall for coverage starting January 1. You choose how much to contribute for the coming year — up to the annual limit set by federal law. For 2024, the limit is $5,000 for married couples filing jointly and $2,500 for single filers or married couples filing separately. This limit may change each year.

Your employer deducts your chosen amount from your paycheck in equal installments throughout the year, before federal income tax, Social Security tax, and Medicare tax are calculated. This happens automatically once you enroll; you do not have to do anything each pay period.

If you have a may have access to life event — birth of a child, change in childcare provider, significant change in childcare costs, or loss of a spouse — you may be able to change your contribution mid-year. The rules on what counts as a may have access to event vary by employer, so check your plan documents or ask your benefits administrator.

How to Get Reimbursed From Your Account

Your FSA plan administrator provides a claim form, either on paper or through an online portal. You submit the form along with receipts or invoices from your childcare provider showing the date, amount, and what service was provided. Some providers give you a simple receipt; others provide a more detailed statement.

The administrator reviews your claim to make sure the expense is covered under the plan rules, then reimburses you. Reimbursement usually takes one to three weeks. Some plans offer a debit card linked to your FSA account, which lets you pay your provider directly without submitting a claim first — but you may still need to provide documentation later if the plan administrator asks.

Keep all receipts and records for at least three years. The IRS can audit FSA claims, and you need proof that you actually paid for the care and that it was for a covered dependent.

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

Any money left in your Dependent Care FSA at the end of the plan year is forfeited — your employer keeps it. This is the biggest risk of using an FSA. If you contribute $5,000 but only spend $3,500 on childcare, you lose $1,500.

To avoid this, estimate your childcare costs for the year as accurately as you can. Add up what you pay monthly for daycare, preschool, babysitters, or summer camp, then multiply by 12. If your costs vary — for example, you pay full-time rates in summer but part-time rates during the school year — add those up month by month.

Some employers offer a grace period, which lets you carry over up to $610 of unused money into the next year (this amount is set by federal law and may change). Not all plans offer this, so check whether yours does. If your plan does not offer a grace period and you think you might not spend all your money, contribute a smaller amount to be safe.

Dependent Care FSA vs. Child and Dependent Care Tax Credit

You cannot use both a Dependent Care FSA and the Child and Dependent Care Tax Credit for the same expenses in the same year. You have to choose which one saves you more money.

The tax credit is a credit on your tax return that reduces your tax bill dollar-for-dollar, up to $1,050 per year (for one dependent). You claim it when you file your taxes. The FSA is a pre-tax deduction that lowers your taxable income before you file.

For most people, the FSA saves more money because it reduces payroll taxes (Social Security and Medicare) in addition to income tax. But if you have a low income, do not work full-time, or have very high childcare costs, the tax credit might be better. You can run the numbers both ways or talk to a tax professional to see which option works for your situation.

What Happens If You Leave Your Job or Have a Life Change

If you leave your job, you lose access to your FSA account. You have until the end of the plan year to submit claims for expenses you already paid, but you cannot contribute any more money. Any unspent balance is forfeited.

If you have a may have access to life event — such as the birth of a child, a significant increase or decrease in childcare costs, or a change in your childcare provider — you may be able to change your contribution amount mid-year. Some plans also let you make changes if your spouse's job or income changes. The specific rules depend on your employer's plan, so contact your benefits administrator to ask what counts as a may have access to event.

If you reduce your contribution mid-year, you cannot get back the money you already contributed for that year. You can only stop or lower future contributions.

Frequently Asked Questions

Can I use Dependent Care FSA money for my child's school tuition?

No. Dependent Care FSA covers only the cost of childcare — the supervision and care of your child while you work. School tuition, even for preschool, is not covered. However, if your preschool or school charges a separate fee for before-school or after-school care, that portion may be covered.

What if I do not spend all my FSA money by the end of the year?

You lose it. This is the use-it-or-lose-it rule. Some employers offer a grace period that lets you carry over up to $610 to the next year, but this is optional and not all plans have it. Check your plan documents to see if yours does. If not, contribute only what you are confident you will spend.

Can I use Dependent Care FSA for overnight summer camp?

No. Overnight camps are considered vacation or education, not childcare. You can use FSA money for day camps that provide childcare during your work hours, but not for camps where your child stays overnight.

Do I have to submit receipts every time I claim money?

Yes. Your FSA plan administrator requires receipts or invoices showing the date, amount, and type of care provided. Some plans with debit cards may not ask for documentation upfront, but you should keep receipts in case the plan asks for them later during an audit.

What if my childcare costs drop mid-year?

You can request a mid-year change to your contribution if you have a may have access to life event, such as a change in your childcare provider or a significant drop in costs. Contact your benefits administrator to ask whether your situation qualifies. If it does not, you are stuck with your current contribution for the rest of the year.