Dependent Care FSA
The Dependent Care FSA allows you to set aside pre-tax dollars to pay for eligible dependent day care expenses while you are working.
Eligible expenses include day care for your child under age 13 (or your disabled dependent over age 13) provided:
- In your home
- At a licensed day care or after-school center
- At summer camp
Day care must be necessary to allow you and your spouse to work.
Dependent Day Care FSA vs. Tax Credit
Another way to reduce taxes with your dependent day care expenses is to claim the child care credit on your federal income tax return.
Here is how the tax credit works: You can claim a 20% to 35% tax credit for child care expenses. The percentage that applies to you is based on your household income. If you have one dependent, the maximum expense that you can apply to the credit is $3,000 each calendar year. That means your annual tax saving when you use the credit can be up to $1,050 (35% x $3,000 = $1,050). If you have two or more eligible dependents, you can claim up to $6,000 in expenses, and your credit can be a maximum of $2,100 (35% x $6,000 = $2,100).