A Dependent Care Flexible Spending Account (DC FSA) can help you save money on your child care expenses. If you and your spouse both work or you are a single parent, a DC FSA may be right for you.
Here’s how it works: you set aside money in your account before you pay taxes on it. When you set aside money in a DC FSA, you lower the amount of income the government will tax, so you pay fewer taxes each year.
Paying fewer taxes means you keep more of the money you make. In the example, a married couple estimates they will spend over $5,000 on day care expenses for their child next year, so they elect to put $5,000 in their Dependent Care FSA. See how they can save money:
| With DCFSA | |
|---|---|
| Annual Income | $40,000 |
| Pre-Tax Contributions | 5,000 |
| Taxable Income | $35,000 |
| Taxes | 8,750 |
| Take-Home Pay | $26,250 |
| Out-of-Pocket Dependent Care Expenses | 0 |
| Spendable Income | $26,250 |
| Savings Each Year | $1,250 |
The savings amounts in the example are provided by Surency for illustrative purposes only. You may save more or less based on your own tax situation. Some states do not recognize these tax exclusions for this program. No part of this website is tax, financial or legal advice. You should consult your own legal and tax advisers regarding your personal situation and whether this is the right program for you.
You can use the money in your DC FSA to pay for day care, babysitting and general purpose day camps for your dependents under the age of 13 while you are at work. You can also use the funds to pay for adult day care services for dependent adults who are unable to care for themselves (if they live with you for at least eight hours per day).
Participating in a Surency Flex DC FSA plan is easy.
If you participate in a DC FSA, you may not claim child care credits on your tax return. Before you enroll, you should evaluate the tax advantages for each option as well as the impact on your tax liability and your ability to take advantage of the Earned Income Tax Credit.
