DCFSA (Dependent Care FSA)

A Dependent Care FSA is a pre-tax account that lets employees set aside money to pay for qualifying childcare and elder care expenses so that the employee (and spouse, if married) can work or look for work. Eligible expenses include daycare, preschool, before- and after-school programs, summer day camps, and adult day care for a qualifying dependent. The 2024 contribution limit is $5,000 per household (or $2,500 if married filing separately).

The tax savings are significant. A family in the 22 percent federal tax bracket plus 7.65 percent FICA saves nearly $1,500 in taxes by fully funding a DCFSA at $5,000. Unlike a medical FSA, the DCFSA has strict use-it-or-lose-it rules with no carryover — a grace period of up to 2.5 months into the next year is the only extension allowed. The account is separate from a medical FSA and has its own contribution limit; a family can contribute the full $3,200 to a medical FSA and $5,000 to a DCFSA in the same year. Reimbursement requires documentation of the care provider (including tax ID) and dates of service.

The takeaway: if you have young children in daycare or after-school programs, always max the DCFSA at $5,000. The tax savings pay for real childcare hours, and predictable childcare expenses make the use-it-or-lose-it rule easy to manage.