What is a Dependent Care FSA? Here's What You Need to Know

July 20, 2017

A Dependent Care Flexible Spending Account (Dependent Care FSA) is a benefit that lets employees set aside pre-tax dollars to help pay for dependent care. Contributing to this type of account reduces taxable income and spreads the benefits of pre-tax dollars throughout the year, helping you save 30 percent or more on your dependent care costs.

They’re a great way to save money on expenses such as childcare or elderly care for a dependent. But the eligibility of those expenses depends on the status of the dependent and how that care is impacting the parent or guardian’s ability to work.

Dependent Care FSA Eligibility

Funds can be used to pay for childcare for children under age 13 when they’re claimed as qualifying dependents. But the savings potential isn’t limited to just childcare. They can also cover care for a disabled spouse or dependent of any age.

To be eligible for the Dependent Care FSA offered through your employer, you and your spouse (if applicable) must be employed, or your spouse must be a full-time student or looking for work.

Big Savings Potential

Let’s say you enroll and contribute the $5,000 per year into a Dependent Care FSA (which is the maximum allowed by the IRS) and pay the average American tax rate of 29.8 percent. By putting that money aside before paying taxes on it rather than allowing the funds to be taxed, you’d save nearly $1,500 for the year!

Note: The limit is $2,500 per person per year for married couples who file taxes separately.

Fast and Easy Reimbursement

Collecting reimbursement for dependent care expenses has never been simpler. Here are a few options you can take advantage of:

  • Mobile or online reimbursement. You can easily upload documentation to a claim by logging into the Benefits Mobile App by Discovery Benefits, taking a photo of your documentation with your phone’s camera and uploading it. You can also use your app or online account to upload your Reimbursement Request Form. No additional documentation is required if the form is signed by the dependent care provider. Once enrolled, you can find the form in your online account or by searching in Discovery Answers.
  • Our Recurring Dependent Care program. If you’re paying for daycare expenses with your account and enroll in this program, you only need to submit one reimbursement form per year for each daycare provider used.

Weighing the Tax Credit

The IRS offers a tax credit to those who have childcare or dependent care expenses. You can’t enroll in pre-tax benefits and apply for the tax credit with the same funds. However, the tax credit is up to $6,000 per year for two or more children, which is $1,000 more than a Dependent Care Flexible Spending Account's annual limit.

It’s possible to apply the tax credit to the difference of what you put into dependent care and the tax credit (for example, if you’re putting $5,000 into the account, that would leave $1,000 that you can apply the tax credit to before you’ve reached the $6,000 ceiling for the credit).

Learn more about how a Dependent Care FSA works.

Dependent Care FSA infographic

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