What Is a Dependent Care FSA? Save Thousands on Childcare Taxes

If you pay for daycare, preschool, an after-school program, or a nanny so you can work, a Dependent Care Flexible Spending Account (FSA) lets you pay for it with pre-tax dollars instead of after-tax income — a benefit worth $1,000+ per year for most working parents whose employer offers one.

How a Dependent Care FSA Works

You elect an amount to have deducted from your paycheck before taxes are withheld, and that money funds an account you draw from to reimburse eligible childcare expenses. Because the contribution never counts as taxable income, you avoid federal income tax, Social Security tax, and Medicare tax on every dollar you put in.

Contribution Limits and Eligible Expenses

• 2025 limit: $5,000 per household per year ($2,500 if married filing separately)
• Eligible: daycare, preschool, before/after-school care, summer day camp, in-home nannies or au pairs
• Not eligible: overnight camps, schooling for kindergarten and above (tuition, not care), a babysitter for a date night
• Children must be under 13, or any age if physically or mentally incapable of self-care
• Both spouses must have earned income (or be a full-time student/disabled) to use the account

Dependent Care FSA vs. the Child and Dependent Care Tax Credit

You can't 'double dip' on the same expenses, but you can use both: the FSA shelters up to $5,000, and the tax credit can still apply to additional qualifying expenses above that amount (up to the credit's own $3,000/$6,000 expense cap). For most middle- and higher-income families, the FSA's tax savings are larger than the credit's, since the credit percentage shrinks as income rises.

The 'Use It or Lose It' Risk

Unlike an HSA, Dependent Care FSA funds generally don't roll over — you either use the full election on eligible care during the plan year (some employers offer a short grace period or small carryover) or forfeit what's left. Elect an amount close to your actual expected childcare costs, not more.