A dependent care FSA — formally a dependent care assistance program — reimburses care costs tax-free, but only when both of these are true.
Key Takeaways
The account follows the same definitions as the federal child and dependent care credit, which is why IRS Publication 503 is the reference plan administrators use when they approve or deny a claim.
The household limit rose to $7,500 a year for 2026 — $3,750 for married employees filing separately — up from the $5,000 that applied through 2025.
At tax time the employee reports the benefit and the provider on Form 2441, and the employer reports the amount in Box 10 of the W-2.
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The Two-Part Test Every Expense Has to Pass
- The care is for a qualifying person. A child under 13, or a spouse or dependent of any age who is physically or mentally unable to care for themselves and lives with the employee for more than half the year.
- The care is what lets the employee work. It has to allow the employee, and the employee’s spouse if married, to work or look for work. The main purpose has to be care — not education, recreation or a night out.
The account follows the same definitions as the federal child and dependent care credit, which is why IRS Publication 503 is the reference plan administrators use when they approve or deny a claim.
For a longer view of cost, see how a year-round health and cost strategy works between renewals.
What Counts and What Doesn’t
| Expense | Eligible? | Why |
|---|---|---|
| Daycare center or family daycare | Yes | Care outside the home. A center caring for more than six people must meet state and local licensing rules. |
| Preschool or nursery school | Yes | Below kindergarten, the whole cost is treated as care. |
| Kindergarten or private school tuition | No | From kindergarten up, tuition is education, not care. |
| Before- and after-school care | Yes | Care outside school hours, at any grade, while the child is under 13. |
| Summer day camp | Yes | Including specialty day camps such as sports or coding camps. |
| Overnight or sleepaway camp | No | Overnight camp is excluded entirely. |
| Nanny, au pair or babysitter while you work | Yes | Including the employer payroll taxes you pay on their wages. |
| Babysitter for an evening out | No | The care has to let you work. |
| Adult day care for a parent or spouse | Yes | If they cannot care for themselves and regularly spend at least eight hours a day in your home. |
| Transportation by the care provider | Yes | Travel you provide yourself does not count. |
| Agency fees and required deposits | Yes | Once care is actually provided. A forfeited deposit does not count. |
| Tutoring, lessons and enrichment programs | No | Education or recreation, not care. |
| Care from your spouse, your child under 19, or anyone you claim as a dependent | No | These providers are excluded by law, as is the child’s other parent. |
How Much Can Go In: $7,500 Starting in 2026
The household limit rose to $7,500 a year for 2026 — $3,750 for married employees filing separately — up from the $5,000 that applied through 2025. The change came from the One Big Beautiful Bill Act, it is permanent, and it is not indexed for inflation. The limit is per household, so two spouses with accounts at two employers share it.
Two other caps apply. Reimbursements cannot exceed the lower-earning spouse’s earned income, and a spouse who is a full-time student or unable to care for themselves is treated as earning $250 a month with one qualifying person, or $500 a month with two or more. And the higher limit is only available if the employer’s plan document adopted it — the employer side of that change is covered on our dependent care and family support page.
What a Claim Needs to Get Paid
- The provider’s name, address and taxpayer identification number — a Social Security number for an individual, an EIN for a center. Tax-exempt providers can be listed as tax-exempt.
- Dates of service. A dependent care account pays as care is provided, not in advance. Prepaying a summer camp in March is fine, but the claim is reimbursed once the camp weeks happen.
- A receipt or provider statement showing the amount paid for care, separate from any charges for food, supplies or activities.
At tax time the employee reports the benefit and the provider on Form 2441, and the employer reports the amount in Box 10 of the W-2.
The Account or the Tax Credit?
The same dollar cannot be used twice: expenses reimbursed by the account cannot also be claimed for the child and dependent care credit. Starting in 2026 the credit rate rises to as much as 50% for lower-income families, on up to $3,000 of expenses for one qualifying person or $6,000 for two or more. For most mid- and higher-income employees the account still saves more, because it avoids income tax and FICA on the full $7,500. For lower-paid employees the credit can now be worth more, and an employer that promotes the account without saying so is steering some people to the worse option.
Questions We Get
Is summer camp eligible for a dependent care FSA?
Day camp is eligible, including specialty day camps. Overnight camp is not. The child has to be under 13 and the camp has to be what lets the parent work.
Have a Renewal Coming Up?
Send us your renewal and we will tell you whether the increase is competitive. We review it at no cost, and you only need four documents.
Send Us Your RenewalCan I use my dependent care FSA to pay a nanny?
Yes, including the employer payroll taxes you pay on the nanny’s wages. The nanny cannot be your spouse, your child under 19, someone you claim as a dependent, or the child’s other parent.
Does preschool tuition count?
Yes. Preschool and nursery school below kindergarten count in full. Kindergarten and higher-grade tuition does not, although before- and after-school care at those grades does.
Can I pay a grandparent to watch my child?
Yes, as long as the grandparent is not someone you claim as a dependent. They have to give you their Social Security number for the claim, and the payments are taxable income to them.
What is the dependent care FSA limit for 2026?
$7,500 per household, or $3,750 for married employees filing separately. It was $5,000 through 2025. The new amount is permanent and not indexed for inflation.
My child turns 13 this year. What still counts?
Care provided before the thirteenth birthday counts. Care after it does not, unless the child is physically or mentally unable to care for themselves.
Can I use it for an elderly parent?
Yes, if the parent cannot care for themselves, lives with you for more than half the year and is your dependent, or would be except for their income. Care outside your home, such as adult day care, counts only if the parent regularly spends at least eight hours a day in your home.
Is a dependent care FSA the same as a health FSA?
No. They are separate accounts with separate limits, and money cannot move between them. A health FSA pays medical expenses; a dependent care FSA pays for care that lets you work.
General information about dependent care accounts, not tax advice. Individual situations belong with a tax professional, and CFH clients have access to CPAs through the firm.
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Also from CFH: Group health insurance in Reese, MI · Employee Benefits Consulting in Michigan: A Complete Guide for Employers · What Factors Should I Consider When Choosing a Health Insurance Provider for My
Related Guides
Cafeteria Plans for Employers
How Section 125 cafeteria plans let employees pay for benefits pre-tax.
Small Group Health Insurance Guide for Michigan Employers (2 to 50 Employees)
How small group health insurance works in Michigan and how to compare your options.
Employer Benefits Guides: Eligibility, Plan Design, Life Events and Rules
Our library of plain-English guides on eligibility, plan design and compliance.
Where the Rules Come From
The laws named in this article link to the statute or regulation they come from. This is general information, not legal or tax advice, and rules change, so check the current text.
Cafeteria Plans (26 U.S.C. 125)
Lets employees pay for certain benefits with pre-tax dollars, under tests and election rules.
Got a renewal coming?
Send it to us and we will tell you what we would do. A team of benefits professionals reads every renewal, and you get a straight answer on cost, plan design and what to ask your carrier.
CFH Insurance Consultants is an independent employee benefits consulting firm. We help employers manage cost, compliance and renewals, and we work in teams for proper coverage of every account.
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