How to Set Up a Dependent Care FSA

A Dependent Care Flexible Spending Account (DCFSA) is an employer-sponsored benefit designed to help manage the costs of care for eligible dependents while you and your spouse work. It allows you to set aside money from your paycheck on a pre-tax basis, meaning funds are deducted from your gross pay before income and payroll taxes are calculated. This process lowers your total taxable income for the year, which reduces the amount of tax you owe.

Key Decisions and Information Needed for Enrollment

Before enrolling in a Dependent Care FSA, you must determine if your dependent meets IRS criteria. A qualifying person is your child who is under the age of 13. The definition also includes a spouse or any other tax dependent who is physically or mentally incapable of self-care and lives in your home for more than half of the year. If you are divorced, only the parent who is the primary caregiver is permitted to use a DCFSA for a child’s expenses.

You must identify which of your expenses are qualified for reimbursement under IRS rules. Qualifying expenses include:

• Payments for daycare centers and preschool
• After-school programs
• Summer day camps
• Babysitting services necessary for you to work

Expenses that do not qualify include:

• Tuition for kindergarten and higher grades
• Overnight camps
• Enrichment classes like music or sports lessons
• Late payment fees

More details can be found in IRS Publication 503.

Estimating your annual care costs determines your contribution amount. Review contracts and past bills from care providers to project your expenses for the upcoming plan year. This is important due to the “use-it-or-lose-it” rule, which means any funds left in the account at the end of the plan year are forfeited. Some employers may offer a grace period of up to 2.5 months to incur new expenses or a limited carryover of unused funds.

The IRS sets annual contribution limits. For 2025, this is $5,000 per household or $2,500 if you are married and filing separately. You should confirm your specific plan’s contribution cap during enrollment, as some employers may set a lower limit.

For enrollment forms, you must gather specific information. This includes your personal information, such as your name and Social Security Number, and the full name and date of birth for each dependent. You will also need the full name, address, and Taxpayer Identification Number (TIN) for each care provider. A TIN can be a Social Security Number (SSN) for an individual or an Employer Identification Number (EIN) for a business. This provider information is also required when you file your annual income taxes on Form 2441.

Step-by-Step Guide to Enrolling

Enrollment is restricted to specific periods. The most common time is during your employer’s annual open enrollment, held in the fall for the upcoming year. Participation does not automatically continue, so you must make an election each year to contribute to a new or existing DCFSA.

You can also enroll or change your contribution amount after a Qualifying Life Event (QLE). For a DCFSA, these events include:

• The birth or adoption of a child
• A change in your marital status
• A change in your employment
• A change in your care provider or a significant change in the cost of care

Following a QLE, you have a limited window, often 30 to 60 days, to make changes to your benefits.

The process for submitting your enrollment often involves an online benefits portal where you can enter your desired annual contribution amount and confirm your choices. Some employers may instead use paper enrollment forms, which you would obtain from your human resources department and return by the specified deadline.

After submitting your enrollment, you should receive a confirmation of your election from your employer or the FSA administrator. Review your first pay stub of the new plan year to ensure the per-pay-period deduction matches your annual election.

Accessing and Using Your FSA Funds

A common way to use DCFSA funds is with a dedicated debit card provided by the FSA administrator. You can use this card to pay your care provider directly for services, similar to a standard debit transaction. Even when using the debit card, you must keep all itemized receipts and statements from your provider. The FSA administrator may require you to submit this documentation to substantiate that a charge was for a qualifying dependent care expense.

If you do not use a debit card, you will pay for services out-of-pocket and submit a claim for reimbursement. This involves filling out a claim form through an online portal or mobile app and attaching proof of the expense. The required documentation is an itemized receipt or statement that includes:

• The dates of service
• The dependent’s name
• The provider’s name and tax ID number
• The amount paid

Once a claim is approved, the FSA administrator will issue the reimbursement via direct deposit or a paper check. Funds are not available as a lump sum at the start of the year; they become available for reimbursement as they are deducted from your paychecks. You can only be reimbursed for services that have already been provided and only up to the amount that has accumulated in your account.