What Is a Dependent Care Spending Account?

A Dependent Care Flexible Spending Account (DCFSA) helps families manage and reduce dependent care costs. This employer-sponsored benefit allows individuals to set aside funds for eligible care services. Its primary purpose is to help families save money on expenses like childcare, enabling parents or guardians to work or seek employment.

What a Dependent Care FSA Is

A Dependent Care Flexible Spending Account is an employer-sponsored benefit that helps individuals cover eligible dependent care costs. Contributions are made through pre-tax payroll deductions, meaning money is withheld from an employee’s salary before federal income, state income, and FICA taxes (Social Security and Medicare) are calculated. This pre-tax treatment reduces an individual’s taxable income, leading to tax savings. For instance, a person in a 24% federal tax bracket could save $240 in federal taxes for every $1,000 contributed.

Funds deposited into a DCFSA pay for dependent care expenses that allow the account holder and their spouse, if applicable, to work or look for work. This account differs from other Flexible Spending Accounts, like Health FSAs, by focusing solely on care-related costs. While a DCFSA offers tax advantages, it generally operates under a “use-it-or-lose-it” rule, meaning funds must be spent within a specified period or they may be forfeited. Unlike some healthcare FSAs, DCFSAs are not typically “pre-funded,” so reimbursements are made as funds accumulate through payroll deductions.

Enrollment and Contribution Rules

Participation in a Dependent Care FSA is typically offered through an employer’s benefits package, with enrollment during the company’s open enrollment period. Employees decide their annual contribution amount at enrollment. This election is generally irrevocable for the plan year unless a qualifying life event occurs, such as changes in marital status, the birth or adoption of a child, or a change in employment status for the employee or their spouse.

To be eligible for a DCFSA, the employee must have earned income. The care must be necessary for them (and their spouse, if married) to work or actively look for work. The dependent receiving care must meet specific criteria, usually being a child under 13. It can also be a spouse or another dependent of any age who is physically or mentally incapable of self-care and lives with the taxpayer for more than half the year.

For the 2025 tax year, the annual maximum contribution limit for a Dependent Care FSA is $5,000 per household for single filers or married couples filing jointly. If married individuals file separately, the limit is $2,500 per person. These limits apply to the household as a whole; combined contributions cannot exceed the household maximum if both spouses have access to a DCFSA. Employers may also set lower limits than the federal maximum for their plans.

Claiming Expenses and Important Rules

Using Dependent Care FSA funds involves understanding which expenses qualify for reimbursement. Common eligible expenses include fees for daycare centers, nursery schools, preschool programs, and before and after-school care. Costs for summer day camps, nannies, or babysitters providing care while the employee is working are also typically eligible.

Certain expenses are generally not eligible for DCFSA reimbursement. These include kindergarten or private school tuition, considered educational rather than care-related. Overnight camps, medical care, and general household services not directly tied to the dependent’s care are also ineligible. The care provider cannot be a dependent of the employee or a child of the employee under 19 years old.

To receive reimbursement, individuals typically pay for eligible care expenses out-of-pocket and then submit a claim to their plan administrator. Claims usually require documentation, such as itemized receipts or invoices from the care provider. This documentation must include:
Service dates
Name of the dependent receiving care
Type of service
Amount paid
Care provider’s name and tax identification number (EIN or SSN)

Reimbursements are processed after the service has been incurred. If care is paid for in advance, the claim for that period will not be reimbursed until after the service dates have passed.

A significant rule for DCFSAs is the “use-it-or-lose-it” provision; funds not used by the end of the plan year are generally forfeited. Some employers may offer a grace period, typically up to 2.5 months after the plan year ends, allowing employees to incur new eligible expenses against the prior year’s funds. This grace period can help mitigate forfeiture risk, but it is not universally offered by all plans.

For tax purposes, employers report dependent care benefits in Box 10 of Form W-2. Individuals utilizing a DCFSA typically file Form 2441, Child and Dependent Care Expenses, with their federal income tax return. This form helps reconcile benefits received and ensures compliance with IRS regulations. Expenses paid with DCFSA funds cannot also be used to claim the Child and Dependent Care Tax Credit, preventing “double-dipping” on tax benefits.