How to Reimburse Dependent Care FSA Expenses

A Dependent Care Flexible Spending Account (FSA) allows employees to use pre-tax dollars for childcare or eldercare expenses, reducing taxable income. To maximize benefits, it’s essential to understand how to submit claims correctly and receive reimbursements.

Requirements for Reimbursement

Dependent care expenses must be necessary for the account holder or their spouse to work, seek employment, or attend school full-time. The care provider cannot be a tax dependent, such as an older child or relative. The individual receiving care must be a qualifying dependent, typically a child under 13 or a spouse or dependent who is physically or mentally incapable of self-care.

The IRS limits annual contributions to Dependent Care FSAs. In 2024, the maximum is $5,000 for married couples filing jointly or single filers and $2,500 for married individuals filing separately. Expenses exceeding these limits are not reimbursable. Dependent Care FSAs follow a “use-it-or-lose-it” rule, meaning unused funds at the end of the plan year are forfeited unless the employer offers a grace period.

Submitting Claims

Claims are submitted through the employer’s benefits administrator via an online portal, mobile app, or paper form. Required details include the provider’s name, service dates, and amount paid. Some administrators allow recurring claims for ongoing expenses, reimbursing the same amount at regular intervals.

Reimbursement is only available after services have been provided. Claims cannot be submitted in advance, even if payment has already been made. If a daycare requires payment at the start of the month, reimbursement can only be requested after the month ends. Employers may set submission deadlines, often a few months after the plan year ends, so participants should review their plan documents to avoid missing reimbursements.

Eligible Expenses

Qualified expenses include payments to daycare centers, babysitters, nannies, and after-school programs, provided the provider is not a tax dependent of the account holder. Summer day camps qualify, but overnight camps do not.

Care provided by a licensed facility or an individual, such as a private nanny, is eligible, but the provider must report the income to the IRS. Payments made informally, without tax documentation, may cause issues during an audit. Private school tuition for kindergarten and above is not covered, though preschool and early childhood education programs may be eligible.

For elder dependents, in-home care qualifies if necessary for the account holder to work. However, medical care, nursing home fees, and assisted living costs are not covered, as Dependent Care FSAs reimburse only custodial care. Transportation costs related to dependent care, such as a caregiver’s commute, are also ineligible.

Documentation Needed

A detailed receipt or invoice from the care provider must include the provider’s name, address, taxpayer identification number (TIN) or Social Security number (SSN), service dates, and the amount paid. Missing information can result in claim denial.

For in-home caregivers, additional documentation may be needed, including a completed Form W-10 to collect the provider’s taxpayer identification information. If classified as a household employee, proof of payroll tax compliance may be required. Payments processed through payroll services that withhold Social Security, Medicare, and unemployment taxes help ensure compliance.

If a provider does not issue formal receipts, a signed statement from the caregiver confirming the service dates and amounts received may be accepted. Some plan administrators also require a signed claim form from the provider. If dependent care expenses are paid through an employer-sponsored Dependent Care Assistance Program (DCAP), additional reporting may be required on Form 2441 when filing taxes.

Reimbursement Timeline and Methods

Processing times vary by employer and benefits administrator. Most claims are reviewed within a few business days, though delays can occur if additional verification is needed. Claims with missing or incorrect information will be rejected and require resubmission. Ensuring all required details, such as provider information and service dates, are accurate helps avoid delays.

Reimbursements are typically issued via direct deposit or paper check, depending on the participant’s preference and employer options. Direct deposit is faster, with funds usually available within a few days after claim approval. Paper checks take longer due to mailing times and may incur processing fees. Some employers offer debit cards linked to the Dependent Care FSA, allowing direct payments to providers, though receipts or invoices may still need to be submitted for verification.