How to Claim Dependent Care FSA Benefits

A Dependent Care Flexible Spending Account (FSA) helps cover childcare or dependent care costs using pre-tax dollars, reducing taxable income and saving money. Many employees overlook how to maximize these benefits, missing out on potential savings.

Understanding how to enroll, what expenses qualify, and how to submit claims is essential to making the most of a Dependent Care FSA.

Eligibility Criteria

To participate, an individual must be employed and have dependents who require care while they work. The IRS defines eligible dependents as children under 13 or a spouse, parent, or other tax-dependent who is physically or mentally incapable of self-care. The care must be necessary for the account holder and, if applicable, their spouse to work or seek employment. If one spouse lacks earned income, the household typically does not qualify unless they are a full-time student or disabled.

Employers determine whether to offer a Dependent Care FSA, and not all workplaces provide this benefit. Self-employed individuals cannot participate, as FSAs are only available through employer-sponsored plans. However, they may qualify for the Child and Dependent Care Tax Credit instead.

The IRS sets contribution limits, currently capped at $5,000 per household or $2,500 for married individuals filing separately. These limits can change, so checking the latest IRS guidelines is advisable.

Enrollment Windows

Employees can enroll during their employer’s annual benefits open enrollment, typically held in the fall for coverage starting the following year. Since elections are generally locked in for the entire plan year, estimating care costs in advance is important.

Changes outside open enrollment are allowed only if a qualifying life event occurs, such as marriage, divorce, birth or adoption of a child, or a significant change in employment status. If an employee or their spouse gains or loses access to dependent care benefits through a job change, they may be eligible to adjust contributions. Employers usually require documentation and set deadlines, often within 30 or 60 days.

Qualifying Expenses

Dependent Care FSAs cover caregiving expenses that enable the account holder to work or seek employment. Eligible expenses include payments to daycare centers, babysitters, and nannies, provided the caregiver is not a dependent of the taxpayer. Care can be provided inside or outside the home, as long as it meets IRS guidelines.

School-related costs can be confusing. Kindergarten tuition and higher grades do not qualify, as education is not considered a dependent care expense. However, preschool and nursery school fees are eligible, as they primarily involve supervision. Before- and after-school programs for children under 13 qualify if they provide care outside regular school hours. Summer day camps are reimbursable if they serve as childcare, but overnight camps are not.

For dependents who cannot care for themselves, adult daycare services may be covered. This includes in-home care, as long as it is not medical in nature, and specialized daycare programs that provide supervision. Assisted living and nursing home costs do not qualify, as they primarily involve medical care.

How to File a Claim

Most Dependent Care FSAs operate on a use-it-or-lose-it basis, meaning funds must be spent within the plan year. Some employers offer a grace period of up to 2.5 months or allow a limited carryover. Claims must be submitted before the plan’s deadline, often March 31 of the following year, though this varies.

Reimbursements are processed after expenses have been incurred, not prepaid. For example, if a daycare requires payment at the start of the month, a claim can only be filed once care has been provided. Some administrators offer direct deposit for faster reimbursement, while others issue checks. If a claim exceeds the available balance, partial payment may be made, with the remainder reimbursed as additional contributions are deducted from payroll.

Documentation and Receipts

Proper documentation is required for claims to be approved. Administrators typically require an itemized receipt or invoice from the care provider, including the provider’s name, address, taxpayer identification number (TIN) or Social Security number, the dates of service, and the amount charged. Generic credit card statements or handwritten notes without sufficient details will not be accepted. If a provider refuses to supply a TIN, the IRS requires the account holder to make a reasonable effort to obtain it, such as requesting it in writing and keeping records of the attempt.

For in-home caregivers, detailed payment records are necessary, as household employees must be reported on a W-2, and employment taxes may apply. If audited, the IRS may request additional documentation beyond what was submitted for reimbursement, so retaining copies of all receipts and claims for at least three years is recommended. Some employers offer online portals or mobile apps for claim submission, allowing users to upload receipts and track reimbursements in real time.

Tax Filing Requirements

Since Dependent Care FSAs provide tax savings, participants must report their annual contributions when filing taxes. The total amount contributed must be listed on Form 2441, Child and Dependent Care Expenses, submitted with Form 1040. This form ensures funds were used for eligible expenses and verifies the taxpayer meets the earned income requirement.

If dependent care costs exceed FSA contributions, the remaining amount may qualify for the Child and Dependent Care Tax Credit, though the credit percentage decreases for higher-income households.

Employers report Dependent Care FSA contributions in Box 10 of the employee’s W-2. If contributions exceed the IRS limit, the excess is taxable income and must be included on the tax return. Using FSA funds for non-qualifying expenses requires repayment and may result in additional tax liabilities. Ensuring all reported information matches employer-provided tax documents can help avoid IRS penalties or audits.