Dependent Day Care FSA

Whether you are single or married, if you pay for day care for your children or other dependents so that you can work, this account is designed with you in mind.

If you are married, however, your spouse must work full-time, go to school full-time for at least 5 months out of the year, or be disabled and unable to care for your dependents.

Annual Contribution

You can contribute up to $5,000 per year per "household" into your Dependent Day Care FSA.Your annual contribution will be divided equally and deducted from your pay over 12 pay periods. The minimum contribution is $10 per pay period.

The "household" maximum is a term used by the IRS, and will affect married participants as follows:

  • If your spouse earns less than $5,000 annually, the maximum dependent day care contribution cannot exceed your spouse's income.
  • If you and your spouse both work and file jointly, your participation in one or both employers' Dependent Day Care FSAs cannot exceed $5,000 (combined). For example, if you contribute $4,000 to your LAUSD account, only $1,000 can go into your spouse's FSA. If you file separate tax returns, you each may contribute up to $2,500 in your own dependent day care account.
  • If your spouse is going to school full-time or is disabled, your maximum contribution is limited to $2,400 for one dependent and $4,800 for two or more dependents.

Reimbursing Yourself

The reimbursement process for the Dependent Day Care FSA works a little differently than the Health Care FSA. As you incur and pay for eligible day care expenses, you may file for reimbursement. However, you can only be reimbursed up to the current account balance. If your request exceeds your account balance, the remaining reimbursement will be paid when additional funds are deposited.

Eligible Day Care Expenses

Eligible day care expenses include:

  • Child or adult day care services provided in your home, including Social Security taxes paid on behalf of your employee
  • Child or adult day care services provided at someone else's home
  • Expenses for a licensed day care center
  • A portion of wages for a housekeeper whose duties include caring for a qualified dependent
  • Schooling costs for children not yet in kindergarten (if it cannot be separated from the cost of care)
  • To qualify Day Care as an eligible expense, the IRS says your qualified dependent must either be: under age 13; or physically or mentally disabled (regardless of age) and unable to be self-reliant while you are working. (If you are paying for adult day care outside your home, your dependent must live with you at least 8 hours a day.) Day care providers must claim the income on their tax return, and you will be required to include their Social Security number on your reimbursement request. Fees paid to your dependent child under age 19 are not eligible for reimbursement.

Ineligible Day Care Expenses


Some examples of ineligible expenses include:

  • Babysitting charges for non-work hours
  • Charges paid to one of your dependent children under age 19
  • Charges paid to someone who doesn't report their income to the IRS
  • Charges incurred if your spouse is not working, not going to school full-time for at least 5 months, or is not disabled.


For a complete guide of eligible and ineligible dependent day care expenses, log onto www.irs.gov and retrieve IRS Publication 503.

Federal Tax Credit vs. the Dependent Day Care FSA

The maximum day care expense that can be used to calculate the federal dependent day care tax credit is $3,000 for one dependent and $6,000 for two or more dependents. The tax credit ranges from 20% - 30% of the eligible expense, depending on your annual earnings.

You can take advantage of both tax-reducing methods but keep in mind that the amount you set aside in your FSA reduces the amount you can apply toward the dependent care tax credit on your federal tax return. For example, let's say you have $6,000 in eligible dependent day care expenses in 2007 for 2 children. You can set aside $4,000 to the Dependent Day Care FSA, and then claim a tax credit on the remaining $2,000 on your federal tax return.

As a general rule of thumb, if your adjusted gross income (AGI) is more than $14,000, the Dependent Day Care FSA may provide greater tax savings.

The State of California follows federal tax treatment of FSAs, so you'll also reduce your state income tax when you participate in the Dependent Day Care FSA.