Dependent Care Benefits

Dependent Care Benefits are employer-provided programs that help employees pay for eligible caregiving expenses for dependents - such as children under 13 or dependent adults - so the employee can work. These benefits can come in several forms, including Dependent Care Flexible Spending Accounts (DCFSAs), direct subsidies, or on-site daycare services.

They are especially valuable for working parents or caregivers, offering tax advantages, increased workplace flexibility, and financial relief for care-related costs.

Key Facts

• ‍‍Covers Qualified Dependents: Children under the age of 13 and a spouse or adult dependent incapable of self-care and living in the household.
• Dependent Care Flexible Spending Account (DCFSA):
  
  • A pre-tax benefit account that allows employees to set aside up to $5,000 per household per year (as of 2025)
  • Funds can be used for eligible expenses like daycare, preschool, before/after-school programs, summer camps, and adult day care
  • Money must be used within the plan year or is forfeited, unless a grace period or carryover is allowed
• Tax Savings: Contributions are not subject to federal income tax, Social Security, or Medicare tax, lowering the employee's taxable income.
• Other Forms of Benefits: On-site childcare services, employer subsidies or reimbursements for care expenses, and referrals or support services to locate care providers.
• Regulated Under IRS Section 129: Employers offering these benefits must follow strict compliance rules, including nondiscrimination testing to ensure fairness across income levels.
• Not the Same as Child Tax Credit: These benefits are employer-based and can be used in addition to or instead of the Child and Dependent Care Tax Credit (claimed on personal tax returns).

1. What are dependent care benefits?

They’re employer-provided programs or accounts that help pay for childcare or adult care expenses, allowing employees to work while ensuring their dependents are cared for.

2. What expenses are eligible under a Dependent Care FSA?

• Licensed daycare and preschool
• Before and after-school programs
• Summer day camps
• Adult daycare for incapacitated adult dependents
• Babysitting (if work-related and not by a relative)

3. How much can I contribute to a dependent care FSA?

Up to $5,000 per household per year (or $2,500 if married and filing separately), depending on IRS limits and employer plan rules.

4. Can I use dependent care benefits and still claim the Child and Dependent Care Tax Credit?

Only if your eligible expenses exceed your FSA contributions - you can’t double-dip on the same expenses, but partial use of both is allowed.

5. What happens to unused money in a dependent care FSA?

In most cases, you lose it (the “use-it-or-lose-it” rule), unless your employer allows a grace period or limited carryover into the next year.