What Is a Dependent Care FSA, and How Does It Work?

Millions of employees have access to health and dependent care benefit programs sponsored by employers. Dependent care flexible spending accounts (DCFSAs) are one of these programs. They help ease the burden of child care or dependent care costs.

A dependent care FSA allows individuals to use pretax dollars to pay for qualified dependent care expenses. The money you contribute to your DCFSA can reduce your taxable income, but you must use the funds within a specified period of time. This type of account follows “use-it-or-lose-it” rules like other FSAs.

What is a dependent care FSA?

A dependent care FSA is a tax-advantaged account used to reimburse out-of-pocket dependent care expenses. These expenses can be for a dependent up to age 13. The accounts can also cover expenses for a disabled adult child or spouse, as well as eldercare.  

You will not have to pay taxes on the money you put into a dependent care FSA. It is also a cafeteria plan, which means your employer writes and maintains it for you. Your employer owns the account and determines how reimbursement will happen. The IRS excludes the benefits of this type of plan from taxable income. If you leave your job, you forfeit any funds that are in the account.

How does a dependent care FSA work?

Dependent care FSA contributions come from pretax money set aside from the participant’s paycheck each pay period. This amount, plus any employer contributions, is excluded from the participant’s gross income under Section 125 of the Internal Revenue Code. This reduces the amount of income that is subject to income tax.

If your dependent care FSA funds are spent on services and items besides qualified child or dependent care, your account administrator may deny your claim for reimbursement. This means the funds are forfeited, and taxes will have to be paid on the amount spent.

This account is not pre-funded by employers, like other FSAs. This means that participants don’t have access at the beginning of the year to the full amount of funds they plan to contribute throughout the year. They cannot use funds until they have amassed that amount in their account.

Individuals who participate in this dependent care benefit authorize their employers to withhold a certain amount of money from their paychecks each pay period for the accounts, similar to having a health FSA.

Is a dependent care FSA ‘use it or lose it’?

Yes. Your dependent care FSA funds will expire if they are not used by the end of the year. That’s typically the case with money that you contribute to an FSA. Some plans, such as a healthcare or limited-purpose FSA, will allow an extension or carryover.

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Dependent care FSAs typically do not allow carryovers, but they do have a grace period. This typically gives employees up to 2.5 months past the end of the plan year to spend the remaining funds in the account.

Who is eligible for a dependent care FSA?

Working adults whose employers offer cafeteria plans may be able to get a dependent care FSA. This account is only available if you pay the expenses for a dependent under the age of 13, or for a spouse or an adult dependent who is unable to care for themselves.

Married couples are generally only allowed to use a dependent care FSA if both spouses are working or actively looking for work. Therefore, benefits are not available if one of them is a stay-at-home parent. There is an exception if the parent is not working due to a disability or because they’re participating in educational training as a full-time student. If a couple is divorced, only the parent with custody of the child can use DCFSA funds for child care.

Self-employed individuals cannot open a dependent care FSA. However, they can use DCFSA funds if their spouse participates in an employer's plan.

How to use a dependent care FSA

You can use your dependent care FSA to pay for child care for a dependent who is younger than age 13 whom you claim on your taxes. If your spouse is unable to work or care for themselves, you can also use your DCFSA funds to reimburse expenses for their care. The DCFSA funds can also be used to pay for care for adult dependents who are unable to care for themselves. These individuals must meet certain criteria for you to claim them as a dependent on your tax return.

Dependent care FSA eligible expenses

You can only use dependent care FSA funds to pay expenses for qualifying dependents, which include: 

• Children under 13

• Disabled qualifying relative

• Spouse unable to work or care for themselves

• Adult child unable to work or care for themselves

The IRS has a list of dependent care FSA qualifying expenses. These include expenses related to: 

• Babysitting, day camp, before- and after-school care, and an au pair or nanny

• Adult daycare and homecare services

• Household services provided by cooks, maids, or cleaners, if the services are part of care 

• Applications for care

It’s important to review the list of dependent care FSA qualifying expenses to avoid penalties. A few nonqualified expenses include: 

• Date-night babysitter, overnight camp, summer school, tutoring

• Companion care

• Expenses reimbursed by a state social service agency

• Enrichment lessons for recreational activities, such as music and sports

Can I pay a babysitter with a dependent care FSA?

Yes. You can pay a babysitter with dependent care FSA funds if their service meets certain criteria. 

The IRS defines eligible dependent care services as those that are necessary to allow you  to work or actively look for work. This can mean working for someone else or in your own business. It also includes working from home. Eligible babysitting costs do not include those for:

• Date night

• Family vacation

• Other recreational activities (working out, lunch, personal appointments)

Dependent care FSA limits for 2025 

The 2025 dependent care FSA contribution limit is $5,000 for “single” or “married couples filing jointly” households. The amount goes down to $2,500 for married people filing separately. The $5,000 limit is higher than the 2025 FSA contribution amount of $3,300. The IRS allows companies to offer dependent care assistance programs. These programs allow the additional $1,800 exclusion from taxable income compared to other FSAs. The program must be a written agreement, maintained by the employer. 

However, what you can deduct on your tax return is limited to whichever of these is the smallest amount:

• Total amount of dependent care funds contributed by you and your employer

• Total amount of qualified expenses incurred during the year

• Your earned income, or your spouse’s if applicable

• The maximum amount allowed under your dependent care plan

Funds contributed by your employer include free on-site dependent care. The fair-market value of this care goes toward the contribution limits.

Here’s an example: Juli’s employer offered her a dependent care FSA to pay for her son’s child care expenses in 2025. She contributed $5,000 to the account. But Juli can only deduct $2,350 on her tax return, because that is the amount she incurred in expenses. She has to deduct the amount of her expenses rather than her contributions because it’s the lesser amount.

But let’s say Juli also used the on-site childcare at her job for 8 weeks. The fair-market value of that care is $3,000. So, Juli can exclude the full $5,000 from her taxable income since her expenses exceed that amount. But Juli has to pay taxes on $350 ($5,350 minus $5,000).

Can you contribute to an HSA and dependent care FSA?

Yes. You can contribute to a health savings account (HSA) and dependent care FSA at the same time. Both healthcare plans allow you to use pretax dollars to pay for expenses.

Contributing to an HSA allows you to pay for qualified medical costs with tax-free dollars. A dependent care FSA reimburses individuals for qualified dependent care expenses. Contributing to both accounts allows plan participants to lower their taxable income.

Here is an example: Larry, a 37-year-old employee, contributes the maximum amount of $8,300 to his family HSA in 2024. Larry has a 10-year-old daughter from his previous marriage for whom he is the custodian. Larry’s job offers a dependent care assistance program to help reduce the cost of child care. This program allows Larry to contribute the maximum amount to his DCFSA. The contribution limit for 2024 is $5,000. The contributions to these two accounts – his HSA and his DCFSA —  will potentially reduce the amount of money that he pays taxes on by $13,300 ($8,300 plus $5,000). 

Can you have an FSA and dependent care FSA at the same time?

Yes. You can have an FSA and dependent care FSA at the same time. You can use a health FSA to pay for out-of-pocket qualified medical expenses while you use your dependent care FSA to pay for eligible dependent expenses. Having a health FSA does not affect your eligibility for a DCFSA. Both accounts reduce your taxable income and allow you to use tax-free dollars to pay for qualifying expenses.

Can you use both a dependent care FSA and child tax credit?

Yes. You can use a dependent care FSA and claim the child tax credit. Eligibility for the child tax credit does not rely on dependent care costs. You can claim dependents under the age of 17 for the child tax credit. 

How to enroll in a dependent care FSA

If you believe you are eligible to contribute to a dependent care FSA, you can take the following steps to get started: 

• Reach out to your human resources representative. Find out if your employer offers a dependent care FSA. It’s typically offered as part of your employee benefits package. 

• Determine your contribution. Start by researching the annual contribution limits. Then, estimate your expenses to determine how much you should contribute to a DCFSA. 

• Enroll during your company’s open enrollment period. You can enroll in or make changes to your employee benefits during an open enrollment period. This typically takes place once a year in the fall.

• Review other enrollment options. If you have a qualifying life event, such as having a baby or adopting a child, you may be able to enroll in a DCFSA outside of the standard open enrollment period. 

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Written by:

Timalyn Bowens, EA

Timalyn S. Bowens, EA, is an IRS-licensed enrolled agent who has been working in the tax industry for 11 years. She started Bowens Tax & Bookkeeping Solutions in 2016, helping small businesses keep their records straight and compliant with the IRS.

Edited by:

Charlene Rhinehart, CPA

Charlene Rhinehart, CPA, is a personal finance editor at GoodRx. She has been a certified public accountant for over a decade.

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