Dependent Care FSA Guide

A dependent care flexible spending account (DCFSA) is an employer-sponsored benefit that lets you pay for eligible dependent care expenses with pre-tax dollars. You elect an annual amount during open enrollment, and it is deducted from your paycheck in equal installments before federal income tax, Social Security, and Medicare are calculated.

The result: your taxable income goes down, and you save on taxes. If you are in the 22% federal bracket and contribute the $7,500 maximum, you save roughly $1,650 in federal income tax plus about $574 in FICA taxes — over $2,200 per year in total savings.

The IRS defines eligible expenses broadly as care for a qualifying personthat is necessary so you (and your spouse, if married) can work, actively look for work, or attend school full-time. Here is what typically qualifies:

✅ Eligible child care expenses

• Day care centers and family day care homes
• Preschool and nursery school (ages 2–4)
• Before- and after-school care for children up to age 12
• Summer day camps (sports, arts, academic — but not overnight camps)
• Nannies, babysitters, and au pairs (for care while working)
• In-home caregivers for children or disabled dependents

✅ Eligible adult dependent care expenses

• Adult day care for a spouse or parent who is physically or mentally incapable of self-care
• In-home care for a disabled dependent who lives with you
• Care in a facility that is not primarily medical (e.g., adult day health)

❌ Not eligible

• Kindergarten and higher grades (considered education, not care)
• Overnight camps (day camps only)
• Tuition for private school (elementary through high school)
• Food, clothing, or entertainment that is not part of care
• Care by a parent, sibling under 19, or your own dependent
• Medical expenses (those belong in a health FSA or HSA)

The dependent care FSA maximum sat at $5,000 from 1986 until the end of 2025. The One Big Beautiful Bill Act raised it to $7,500 for the 2026 tax year — the first increase in four decades. It is still a statutory figure rather than an inflation-indexed one, so it will not drift upward each year the way the health FSA and 401(k) limits do.

Note: If you are married, both spouses must have earned income for you to contribute to a dependent care FSA (unless one spouse is a full-time student or disabled). The earned income limit — you cannot contribute more than your own earned income, or your spouse's, whichever is less.

Your savings depend on your marginal tax rate. Because contributions come out pre-tax for federal income tax and FICA (Social Security + Medicare), the combined savings rate is typically 22–32% per dollar contributed.

Here is what contributing the full $7,500 saves at different income levels:

FICA calculation assumes 7.65% (6.2% Social Security + 1.45% Medicare) on income below the Social Security wage base. Savings may also include state income tax depending on your state.

Dependent care FSAs follow a "use-it-or-lose-it" rule. Any money you contribute but do not spend on eligible expenses by the end of the plan year is forfeited back to your employer. That is why it is important to estimate your expenses carefully during open enrollment.

One relief option exists, at the employer's choice and not required:

• Grace period: Up to 2 months and 15 days after the plan year ends to incur and submit expenses.
• Carryover: Not available. A cafeteria plan may not adopt a carryover for a dependent care assistance program — that option exists only for health FSAs, where the 2026 maximum is $680. The temporary carryover allowed for dependent care during the pandemic has expired.

This is the single most expensive misunderstanding about these accounts: people assume the health FSA carryover applies here too, over-contribute, and forfeit the difference. Check your plan documents or ask HR whether your plan has the grace period at all.

You cannot use the same expenses for both the dependent care FSA and the Child and Dependent Care Tax Credit (CDCC). But you may be able to use both if your expenses exceed the $7,500 FSA limit. Here is how they compare:

This interaction changed in 2026. The credit covers up to $6,000 of expenses for two or more children, and the FSA limit is now $7,500 — above that cap. Funding the FSA to the maximum therefore uses up the whole credit base, so there is no leftover expense to claim the CDCC on. Under the old $7,500 limit you could stack $1,000 of expenses into the credit; that gap has closed.

Dependent care FSAs are only available through employers — you cannot open one on your own like an IRA or HSA. Enrollment happens during your company's open enrollment period, usually in the fall for the following plan year. Here is how it works:

Enrollment steps

1. Check eligibility: Confirm your employer offers a dependent care FSA and that you have a qualifying dependent (child under 13 or disabled adult dependent).
2. Estimate expenses: Calculate how much you expect to spend on eligible dependent care in the coming year. Be conservative — you generally lose unused funds.
3. Elect your contribution: Enter your annual election amount during open enrollment. The amount is split evenly across your paychecks for the year.
4. Designate a beneficiary: Some plans require you to name a beneficiary for the account.
5. Submit claims: Pay your care provider directly, then submit receipts or a claim form to your FSA administrator for reimbursement.

Important: You generally cannot change your election mid-year unless you experience a qualifying life event like marriage, divorce, birth or adoption of a child, or a change in your spouse's employment. Choose your amount carefully during open enrollment.

• Over-contributing: The #1 mistake is electing more than you actually spend. Because of the use-it-or-lose-it rule, money left in the account at year-end is forfeited. Start with a conservative estimate and increase next year if you consistently use the full amount.
• Missing the claims deadline: Most plans give you 90 days after the plan year ends to submit claims for expenses incurred during the plan year. Mark the deadline on your calendar so you do not leave money on the table.
• Using it for non-qualified expenses: If you get reimbursed for an expense that does not qualify, you will have to pay the money back and may face penalties. Always check eligibility before submitting a claim.
• Both spouses contributing too much: The $7,500 limit is per household, not per person. If both you and your spouse contribute to separate dependent care FSAs, make sure your combined total does not exceed $7,500 (or $3,750 each if married filing separately).
• Forgetting about summer camp: Summer day camps are eligible expenses that many people overlook. If your child attends day camp during summer break, factor that into your annual election.
• Confusing health FSA and dependent care FSA: They are separate accounts with different rules, different limits, and different eligible expenses. Money from one cannot be used for the other.

A dependent care FSA lowers your taxable income, which increases your take-home pay. Use our paycheck calculator to see exactly how much you could save by contributing pre-tax dollars to a dependent care FSA.