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

A Dependent Care FSA pays for childcare and adult care with money you set aside before taxes

A Dependent Care FSA (also called a Dependent Care Flexible Spending Account) is an employer-sponsored account where you contribute pre-tax dollars to cover childcare, preschool, after-school programs, and adult day care. The money comes out of your paycheck before federal income tax and Social Security tax are calculated, which lowers your taxable income for the year.

The account works like this: you decide how much to contribute for the year, your employer deducts that amount from your paychecks in equal installments, and you submit receipts or invoices to your employer or the plan administrator to get reimbursed. You can only use the money for care that allows you or your spouse to work, go to school, or look for work — not for overnight camps, school tuition, or care during hours you are not working.

The tax savings come from paying for something you would pay for anyway, but with pre-tax dollars instead. If you are in the 22% federal tax bracket and contribute $5,000 to a Dependent Care FSA, you save roughly $1,100 in federal taxes that year (plus state taxes in most states). That is money back in your pocket without changing what you actually spend on care.

Key Takeaways

• You contribute pre-tax money through payroll deduction, which reduces your federal and state taxable income for the year.
• The account covers childcare, preschool, after-school care, and adult day care — but only for hours when you are working or in school.
• You must submit receipts or invoices to get reimbursed, and your employer or plan administrator processes the claim.
• The IRS sets an annual contribution limit (currently $5,000 for most filers, $2,500 if married filing separately), and unused money is forfeited at year-end.
• Your employer must offer the plan for you to participate — it is not available to self-employed people or those whose employers do not sponsor one.

What expenses the Dependent Care FSA actually covers

The IRS has a specific definition of may have access to care: it must enable you to work, attend school full-time, or look for work. This means the care happens while you are doing one of those things, not during your personal time.

may have access to expenses include:

• Daycare centers and in-home daycare providers
• Preschool and pre-K programs (tuition only, not meals or supplies)
• After-school care and summer day camps (but not overnight camps)
• Babysitters and nannies, including payroll taxes you pay on their behalf
• Adult day care for an aging parent or disabled spouse
• Backup childcare services

Expenses that do not may have access to include school tuition for kindergarten and above, overnight camps, sports lessons, music lessons, tutoring, meals and snacks, diapers and supplies, and any care during hours you are not working. If your spouse is home full-time, care during those hours does not count either — the IRS requires that both spouses (or the single parent) be working or in school for the care to may have access to.

How much you can contribute and the use-it-or-lose-it rule

The IRS sets an annual contribution limit. For 2024, the limit is $5,000 per household per year if you are married filing jointly or single, and $2,500 if you are married filing separately. Your employer may set a lower limit, so check your plan documents.

The money you contribute is yours to use throughout the year, but there is a critical catch: any balance remaining in your account at the end of the plan year is forfeited. This is called the "use-it-or-lose-it" rule, and it applies to almost all Dependent Care FSAs. If you contribute $5,000 and only spend $4,200, you lose the $800 — the IRS does not allow you to carry it forward or get it refunded.

Because of this rule, you need to estimate your childcare costs carefully. Look at your actual spending from the past year, account for any changes (a new child starting daycare, a change in your work schedule, a provider rate increase), and contribute only what you are confident you will spend. Many employers allow you to change your contribution amount once per year during open enrollment, and some allow changes if you have a may have access to life event (birth, adoption, change in childcare provider, significant change in care costs).

How to submit claims and get reimbursed

To get money from your account, you submit a reimbursement claim to your employer's plan administrator (often a third-party company like WageWorks, HealthEquity, or Conduent). Most plans let you submit claims online through a website or mobile app, by mail, or by email.

You will need to provide:

• An invoice or receipt from your childcare provider showing the amount, dates of care, and the provider's name and tax ID (if available)
• Proof that you paid (a cancelled check, credit card statement, or bank transfer record)
• A completed claim form (if your plan requires one)

The plan administrator reviews your claim to make sure the expense qualifies and that you have not exceeded your annual limit. Reimbursement typically takes one to two weeks. Some plans offer a debit card that you can use directly at certain providers, which skips the paperwork step — ask your employer whether this option is available.

Keep all receipts and documentation for at least three years in case the IRS audits your return. The plan administrator may also ask for documentation if they need to verify that an expense qualifies.

Dependent Care FSA versus other childcare tax options

If your employer does not offer a Dependent Care FSA, or if you are self-employed, you may be able to use the Child and Dependent Care Tax Credit instead. This is a non-refundable tax credit (not a pre-tax deduction) that you claim on your tax return after the year ends. The credit covers up to $3,000 in may have access to expenses and reduces your tax bill by 20% to 35% of that amount, depending on your income.

The key difference: a Dependent Care FSA reduces your taxable income before you file taxes (lowering both federal and state taxes), while the tax credit is claimed after the year ends and only reduces your federal tax bill. For most people, the FSA saves more money because it also reduces your Social Security and Medicare taxes, but the math depends on your income and tax bracket. You cannot use both the FSA and the credit for the same expenses in the same year — you have to choose one.

If you have a very high income, the tax credit phases out, which makes the FSA the only option. If you have a low income, the credit might be worth more. Run the numbers for your situation, or ask your tax preparer which option saves you more.

Who can participate and how to enroll

You can only use a Dependent Care FSA if your employer offers one. These accounts are most common at large employers and government agencies, but some small employers offer them too. Self-employed people, gig workers, and employees of companies without an FSA plan cannot participate.

To enroll, you typically sign up during your employer's open enrollment period (usually once per year, often in the fall). You will choose your contribution amount for the coming year and elect the Dependent Care FSA through your employer's benefits portal or HR department. Some employers allow you to enroll when you are first hired, and some allow changes if you have a may have access to life event like the birth of a child or a change in childcare costs.

Once you enroll, your contributions are deducted from your paycheck automatically. Your employer sends the money to the plan administrator, who holds it in your account and processes your reimbursement claims throughout the year.

Common mistakes to avoid

The most common mistake is overestimating how much childcare you will use and losing money to the use-it-or-lose-it rule. Be conservative with your estimate, especially if your childcare needs are unpredictable (for example, if you use backup care only occasionally, or if your child might start school mid-year).

Another mistake is submitting claims for expenses that do not may have access to — for example, school tuition for kindergarten and above, or care during hours you are not working. The plan administrator will reject these claims, and you will not get reimbursed. Review the IRS rules before you submit.

A third mistake is not keeping receipts. If you lose documentation, you cannot prove you spent the money, and the plan administrator may deny your claim. Keep all invoices, receipts, and proof of payment for at least three years.

Finally, do not assume your employer's plan works the same way as someone else's. Plans vary in their rules, limits, and what they require for documentation. Read your plan's summary of benefits and coverage, or ask your HR department if you are unsure about a specific expense or rule.

Frequently Asked Questions

Can I use Dependent Care FSA money for overnight camp?

No. The IRS only covers day care — care that happens during the day while you are working or in school. Overnight camps, sleep-away camps, and camps that run for multiple consecutive days do not may have access to, even if they include childcare elements.

What happens to money left in my account at the end of the year?

It is forfeited. The use-it-or-lose-it rule means any balance remaining on December 31 (or your plan year end date) is gone — you cannot carry it forward, roll it over, or get it refunded. This is why estimating your spending carefully is so important.

Can I use Dependent Care FSA for my nanny's payroll taxes?

Yes. If you hire a nanny or in-home provider and pay payroll taxes on their behalf (Social Security, Medicare, unemployment insurance), those taxes count as may have access to childcare expenses and can be reimbursed from your FSA.

Can I use the Dependent Care FSA and the Child and Dependent Care Tax Credit in the same year?

No. You must choose one or the other for the same expenses. However, if you have multiple children or types of care, you could theoretically use the FSA for some expenses and the credit for others — ask your tax preparer whether this strategy makes sense for your situation.

What if my childcare provider does not give me a receipt?

Ask for one. Most providers will issue a receipt or invoice if you request it. If your provider refuses or goes out of business, contact your plan administrator to ask what documentation they will accept as proof of payment. A cancelled check or bank statement showing payment to the provider may be enough, but policies vary by plan.