How a Dependent Care FSA Lets You Pay for Childcare With Pre-Tax Money

What a Dependent Care FSA is and how it works

A Dependent Care Flexible Spending Account (FSA) is an employer-sponsored account that lets you set aside money before taxes are taken out, then use that money to pay for childcare. Your employer deducts the amount you choose directly from your paycheck across the year, which lowers your taxable income. You then request reimbursement from the FSA when you pay a childcare provider.

The main advantage is the tax savings. If you set aside $5,000 in a Dependent Care FSA and you're in the 22% tax bracket, you save roughly $1,100 in federal taxes alone — money you would have paid anyway. State and payroll taxes add to that savings depending on where you live.

The account is separate from your health FSA (if your employer offers one). You manage it independently, and the money doesn't roll over — what you don't use by the end of the plan year is forfeited, with a small grace period or carryover option at some employers.

Key Takeaways

• You contribute pre-tax money through payroll deduction, which reduces both federal income tax and payroll taxes on that amount.
• You can set aside up to $5,000 per year (or $2,500 if married filing separately), though your employer may set a lower limit.
• The money covers childcare expenses only — daycare centers, nannies, after-school programs, and summer camps — but not school tuition or overnight care.
• You must request reimbursement by submitting receipts or invoices from your childcare provider, and unused money at year-end is forfeited unless your plan includes a grace period or carryover.
• Enrollment happens during your employer's open enrollment period, usually once a year, and changes are limited to life events like a new child or job loss.

What childcare expenses the FSA covers

A Dependent Care FSA reimburses you for childcare that allows you to work or look for work. This includes daycare centers, in-home daycare providers, nannies, babysitters, and after-school or summer day programs. The child must be under age 13 (or older if they have a disability that prevents self-care) and claimed as your dependent on your taxes.

The FSA does not cover school tuition, even for preschool or kindergarten, unless the tuition is bundled with childcare services and you can separate the childcare cost. It also does not cover overnight camps, babysitting for social outings, or care provided by a spouse or a child you claim as a dependent.

If you pay a nanny or in-home provider, you can use FSA money for their wages, but not for room and board if they live with you. You can also use it for backup childcare services — the kind you pay per use when your regular provider falls through.

How much you can contribute and the tax savings

The federal limit for 2024 is $5,000 per year if you're married filing jointly or single, or $2,500 if you're married filing separately. Your employer may set a lower cap. You choose your contribution amount during open enrollment, and that amount is divided across your paychecks for the year.

The tax savings depend on your tax bracket and whether you pay state income tax. If you contribute $5,000 and your combined federal, state, and payroll tax rate is 30%, you save $1,500. If your rate is 25%, you save $1,250. The lower your tax bracket, the smaller the savings — but there is still a savings because payroll taxes (Social Security and Medicare) apply to everyone.

Some employers offer a grace period (usually 2.5 months into the next plan year) to spend down unused money, or they allow you to carry over up to $570 (in 2024) to the next year. Check your plan documents or ask your benefits administrator which option your employer uses, because if neither applies, any unspent money is forfeited.

How to enroll and when enrollment happens

Enrollment in a Dependent Care FSA happens during your employer's open enrollment period, which is usually once a year in the fall or early winter. Your employer sends enrollment materials — either on paper, through an online portal, or both — with a deadline to choose. You select the amount you want to contribute for the upcoming plan year, which typically runs January through December.

You can only change your contribution outside of open enrollment if you have a may have access to life event: birth or adoption of a child, change in childcare costs or provider, change in your spouse's employment or benefits, or significant change in your household income. Job loss or a reduction in hours also qualifies. You usually have 30 to 60 days after the event to notify your benefits administrator and make changes.

If your employer does not offer a Dependent Care FSA, you cannot open one on your own. Self-employed people and those without employer coverage may be able to use the Dependent Care Tax Credit instead, which is a different tax benefit you claim on your tax return.

How to request reimbursement

After you pay your childcare provider, you submit a reimbursement request to your FSA administrator (usually through an online portal or by mail). You'll need to provide an invoice or receipt from the provider showing the date of service, the amount paid, and what the payment was for. Some administrators accept credit card or bank statements as proof, but it's safer to get a receipt directly from the provider.

The administrator reviews your request and, if it's approved, sends the reimbursement to your bank account or issues a check, usually within one to two weeks. Keep copies of all receipts and reimbursement confirmations for your records in case of an audit.

Some employers offer an FSA debit card that you can use directly at certain childcare providers, which skips the reimbursement step. Ask your benefits administrator whether your plan includes this option.

What happens to unused money and how to avoid forfeiture

Money left in your Dependent Care FSA at the end of the plan year is forfeited — you lose it. This is called the "use-it-or-lose-it" rule, and it's why choosing the right contribution amount matters. If you contribute $5,000 but only spend $3,500, you forfeit $1,500.

To avoid this, estimate your childcare costs for the year as closely as you can. Add up what you pay monthly, multiply by 12, and account for any planned changes (a new child, a provider rate increase, or a child aging out of daycare). If you're unsure, start with a conservative number and increase it next year if you spent it all.

Some employers offer a grace period — usually 2.5 months into the next plan year — to spend down remaining money. Others allow a carryover of up to $570 (in 2024). Check your plan documents or ask your benefits administrator which option applies to you. If your plan offers neither, plan to spend down your balance before December 31.

Dependent Care FSA versus the Dependent Care Tax Credit

If you don't have access to an FSA through your employer, or if you want to compare your options, the Dependent Care Tax Credit is an alternative. You claim it on your tax return after the year ends, and it covers up to $3,000 in childcare expenses (or $6,000 if you have two or more dependents). The credit is worth 20% to 35% of your expenses, depending on your income.

The FSA is usually better if your employer offers it, because the tax savings are immediate (through lower paychecks) and the savings rate is higher — you avoid income tax, state tax, and payroll taxes all at once. The Tax Credit only reduces your income tax liability, and the percentage decreases as your income rises.

You cannot use both the FSA and the Tax Credit for the same expenses in the same year. If you use an FSA, you claim the Tax Credit only on childcare costs above what the FSA covered. Talk to a tax preparer if you're trying to decide which is better for your situation.

Frequently Asked Questions

Can I change my FSA contribution if my childcare costs go up mid-year?

Only if the increase is due to a may have access to life event — a rate increase from your provider, a new child, or a change in your work schedule. A routine price hike from your provider usually doesn't may have access to. If you do may have access to, you typically have 30 to 60 days to notify your benefits administrator and adjust your contribution for the remainder of the year.

What if I leave my job before I use all the money in my FSA?

You forfeit the unused balance. Some employers allow you to submit reimbursement requests for a short period after you leave (usually 30 to 90 days), so submit any pending requests quickly. Money you've already been reimbursed for is yours to keep.

Can I use FSA money to pay a family member for childcare?

Not if that family member is your spouse or a child you claim as a dependent. You can use it to pay a parent, sibling, or other relative who is not your dependent, as long as they provide childcare and you have a receipt showing the payment and what it was for.

Do I need to report my FSA reimbursements to the IRS?

No. Your employer reports the FSA contributions on your W-2 as pre-tax deductions, and the reimbursements you receive are not taxable income. You don't report them separately on your tax return.

What if my childcare provider won't give me a receipt?

Ask for one in writing — most FSA administrators require it. If the provider refuses, ask whether they accept the FSA debit card directly, which creates a record without a separate receipt. If neither works, you may not be able to get reimbursed for those expenses, so it's worth resolving this before you pay.