Does the Dependent Care FSA Require Both Parents to Work?

Understanding the nuances of a Dependent Care Flexible Spending Account (FSA) is essential for families aiming to maximize their tax savings. A common question arises: do both parents need to be employed to qualify for this benefit? This issue significantly impacts household financial planning and requires a clear understanding of eligibility criteria to make informed decisions about childcare expenses and employment.

Fundamental Eligibility

To navigate a Dependent Care Flexible Spending Account (FSA), understanding eligibility is essential. The Internal Revenue Code Section 129 outlines the framework for these accounts, which provide tax advantages for expenses incurred for dependent care while working. The primary requirement is that the expenses must be necessary for the taxpayer to work or actively seek employment.

Dependent care expenses must be for a qualifying individual, such as a child under 13 or a spouse or dependent unable to care for themselves due to physical or mental limitations. The care must enable the taxpayer—and their spouse, if filing jointly—to work or search for work, tying the benefit directly to employment status.

The IRS caps contributions to a Dependent Care FSA. As of 2024, the maximum contribution is $5,000 for married couples filing jointly or $2,500 for those filing separately. Taxpayers should plan contributions carefully, as unused funds are forfeited at the end of the plan year under the “use-it-or-lose-it” rule.

Both Parents Working Condition

For married couples filing jointly, both spouses must be employed or actively seeking work to qualify for a Dependent Care FSA. This rule ensures the tax benefits support households where both parents contribute to the family income.

If one spouse is a full-time student, the IRS treats student status as equivalent to employment for FSA eligibility, recognizing the economic value of education in preparing for the workforce. Families with a spouse unable to work due to disability also qualify, as the IRS accounts for the challenges faced by such households.

Single parents must also be working or looking for work to use FSA benefits. This requirement highlights the program’s purpose of aiding working parents by providing financial relief for dependent care.

Exceptions for Special Circumstances

While the core guidelines focus on working parents, the IRS provides exceptions for unique family situations.

For parents who are full-time students, the IRS assigns “phantom income” of $250 per month for one qualifying individual or $500 for two or more. This calculation allows families to meet FSA eligibility requirements, acknowledging education as a step toward future employment.

In cases where a spouse is incapable of self-care due to physical or mental conditions, the IRS ensures the family can still qualify for an FSA. This exception reflects an understanding of diverse family challenges and aims to provide equitable access to dependent care assistance.