What is a dependent care FSA?

A dependent care flexible spending account lets participants set aside pre-tax dollars to help pay for dependent care. Contributing to this benefit 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.

It’s a smart way to save money on expenses such as childcare or elderly care for a dependent. In the first of our Benefits open enrollment series, we break down dependent care FSAs. Watch below for the full podcast episode or keep reading to learn more about these plans. 

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 this type of FSA when 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 $5,000 per year into a dependent care FSA in 2023. You also pay the average American tax rate of 29.8 percent. By putting that money aside pre-tax in a dependent care FSA rather than allowing the funds to be taxed, you save nearly $1,500 this year!

For married couples who file taxes separately, the 2023 limit is $2,500 per person per year.

Note: Employers may offer these limits, but are not required to. 

Below is a look at the average participant contribution to a dependent care FSA. For more benefit trends, click below!

Fast and simple reimbursement

If you participate in a dependent care FSA by WEX, you have two easy options for collecting reimbursement with this type of FSA:

• Mobile or online reimbursement. You can easily upload documentation to a claim by logging into our mobile app, 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 our knowledgebase.
• 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 versus a dependent care FSA

The IRS offers a tax credit to those who have childcare or dependent care expenses. You can’t enroll in a dependent care FSA and apply for the tax credit with the same funds. The tax credit is up to $6,000 per year for two or more children.

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.

Check out our graphic below to learn more about dependent care FSAs!

This blog post was most recently updated in July 2023. 

The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own counsel.