Key takeaways:
A dependent care flexible spending account (DCFSA) allows qualified individuals to pay for child and dependent care expenses completely tax-free, up to a certain limit.
Starting in 2026, the One Big Beautiful Bill Act permanently increases the annual contribution limit on dependent care FSAs to $7,500 per household.
You can contribute to a health savings account (HSA) and dependent care FSA at the same time. However, the money in your DCFSA must be used within a specified period of time.
Many employees have access to dependent care benefits through their employers, including a dependent care flexible spending account (DCFSA). A DCFSA lets you use pretax dollars to pay for eligible dependent care expenses, which can help lower your taxable income.
Beginning in 2026, the annual DCFSA contribution limit increases under the One Big Beautiful Bill Act (OBBBA). But like other FSAs, this account follows “use-it-or-lose-it” rules, so it’s important to understand how it works before deciding how much to contribute.
What is a dependent care FSA?
A dependent care FSA is an employer-sponsored benefit that allows you to set aside pretax money for eligible 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 for 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.
Employers may continue offering dependent care benefits through a dependent care assistance program, which is a written plan that allows employees to exclude dependent care contributions from taxable income. 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
Maximum amount allowed under your dependent care plan
What are the dependent care FSA limits for 2026?
The dependent care FSA contribution limit increased for 2026 to $7,500 for “single” or “married couples filing jointly” households, and $3,750 per spouse for married couples filing separately. This change comes from the One Big Beautiful Bill Act, which raised the dependent care FSA limit, permanently, for the first time in nearly four decades (excluding temporary adjustments such as an increase to $10,500 in 2021). The original $5,000 limit was established by the Tax Reform Act of 1986 and had remained unchanged because it’s not indexed for inflation.
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.
Do you have a flexible spending account (FSA)? Learn how FSAs work to avoid losing any unused funds.
Can you buy lip balm with an FSA? Yes, if your lip balm meets these requirements.
Need to use your flexible spending account (FSA) funds before the deadline? Check out this list of FSA-eligible items, including everything from vision care to prescription medications.
This account is not prefunded 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.
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 type of account is only available if you pay the expenses for a dependent under the age of 13, or for a spouse or 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 dependents 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 au pair or nanny services
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 services meet 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)
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 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 $8,750 to his family HSA in 2026. 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 2026 is $7,500. The contributions to these two accounts – his HSA and DCFSA — will potentially reduce the amount of money that he pays taxes on by $16,250 ($8,750 plus $7,500).
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, 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. Find out if your employer plans to amend its Section 125 cafeteria plan to adopt the new limit. 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.
The bottom line
You can reduce your taxable income by using a dependent care flexible spending account (DCFSA) to pay for qualified dependent care expenses. Under the One Big Beautiful Bill Act, the annual contribution limit goes from $5,000 to $7,500. Ask your employer if its plan design accommodates the new plan limits.
Having a dependent care FSA comes with many benefits, but it’s best to review your needs and tax situation to determine if this account is best for you. If your funds are not spent properly, you will have to pay taxes on them. You must use all your dependent care FSA funds within a specified period of time, or you will lose them.
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References
119th Congress. (2025). H.R.1 - an act to provide for reconciliation pursuant to title II of H. Con. Res. 14.
Internal Revenue Service. (2025). Instructions for Form 2441 (2025).
Internal Revenue Service. (2025). Publication 503 (2024), Child and Dependent Care Expenses.
Internal Revenue Service. (2024). Publication 15-B (2025), Employer's Tax Guide to fFringe bBenefits.
Legal Information Institute. (n.d.). 26 U.S. Code § 125 - Cafeteria plans.
