For many families, childcare is a major part of their household budgets. Some families spend several thousand dollars a month on childcare, depending on the number of children they have and the type of childcare they provide their children.

Fortunately, the government offers parents the option a way to defray some of the costs of childcare through dependent care flexible savings accounts (FSA). Depending on your tax bracket, you could save thousands of dollars on childcare through these FSA accounts.


  • A Dependent Care Flexible Savings Account (FSA) allows parents to contribute pre-tax money to pay for eligible child or other dependent care expenses.
  • Contributions are exempt from federal, state, and payroll taxes.
  • FSA money must be spent by the end of February of the following calendar year (“use it or lose it”).


  • During open enrollment (generally in November or December), you choose the contribution amount to the FSA for the upcoming calendar year
  • You cannot make changes to the FSA contribution amount after open enrollment unless a qualifying event occurs (e.g. marriage, new child)
  • The contribution amount is deducted from each paycheck and added to your FSA account over the course of the year
  • Maximum annual contribution is $2,500 for single taxpayers, or $5,000 for married filing jointly taxpayers
  • If one parent is a stay-at-home parent who is not currently in school or looking for work, then they should not open an FSA, as they would not qualify to spend the FSA dollars.

What’s covered

The FSA FEDS website has a more comprehensive list of eligible and ineligible expenses, but here are the most common uses of dependent care FSA dollars.

  • Childcare / preschool
  • Babysitter (only if related to work)
  • Au pair
  • Before or after school programs

The FSA can be used not only for your children, but also for a spouse or relative who lives in your home and might need elder care or adult daycare.

What’s not covered

In general, only childcare that is used to enable the parents to work or go to school is covered under the FSA. So physicians with stay-at-home spouses would not have childcare covered. Also, tuition for private school beginning at kindergarten is excluded. The FSA FEDS website has a more complete list of exclusions:

  • Babysitting for non-work related reasons (e.g. dinner date with your spouse)
  • Educational or learning services (i.e. tutoring)
  • Private school for kindergarten and up
  • Childcare services, before-school, or after-school programs for children 13 and older
  • Nursing home care

Spending your FSA dollars

  • You can only spend what’s currently in your FSA account balance, not the entire election amount. For example, you can’t request reimbursement for the full $5,000 maximum in January, because the money has not yet been deducted from your account. Just keep your receipts and you’ll get the reimbursement slowly over the year.
  • Some FSAs have a grace period where you can continue spending your FSA dollars a few months into the following calendar year. Please check with your employer or FSA administrator for the grace period on your FSA.

Deciding how much to contribute

  • Think about your planned child care expenses for the upcoming calendar year. If you know the tuition for your child’s daycare, you can easily calculate how much you’ll likely spend in 2018.
  • The maximum is $2,500 for single tax filers, and $5,000 for married tax filers, so most full-time physicians with a working spouse who send their child to daycare full-time will spend more than that in a calendar year.
  • Do not contribute to an FSA if your spouse does not work outside the home; you will not get reimbursed even if you send your child to preschool.
  • While you do have a two-month grace period in 2019 to spend any excess FSA dollars, I would contribute less to the FSA if you think there is a chance that you will not spend all of the money.
  • For most physicians and residents, the FSA will give a larger credit than the dependent care tax credit from the IRS. However, since the maximum for the dependent care tax credit is $3,000 per child (up to $6,000), while the FSA maximum is $5,000, you may be able to receive the dependent care tax credit on the portion of childcare expenses above the FSA maximum but below the dependent care tax credit maximum (i.e. up to $1,000 x 20%) if you send more than one child to daycare.


The FSA can be a great way to save money on childcare expenses. Consider your childcare expenses for 2018, check out the FSAFEDS website, and talk to your HR department to see whether enrolling in a dependent care FSA would be beneficial to you.

What do you think? How much do you spend on childcare each year? Do you take advantage of the dependent care FSA or the child and dependent care tax credit?


  1. We have maxed out the dependent care FSA since our son was born, and (with a full-time nanny) will do so for at least the next five years. All said, we will have used about ~$40k of FSA money by the end, with maybe 1/3 of that representing money directly in our pockets due to the tax savings. It’s a no brainer.

  2. I don’t have children, but my good friends now have a 7 week old daughter. This is a major concern for them. I will forward them this post. Thank you.

    • If your friend has a low income (e.g. <43,000 combined), then they need to run the numbers between the tax credit and the FSA.

      If their combined income is > 43,000 (like most residents or attending physicians), then the IRS tax credit would only be 20%, while their marginal tax credit would be at least 22.65% (15% marginal federal + 6.2% Social Secuity + 1.45% Medicare + whatever state tax rate). If their income is < 43,000, then they would have to do the math to see which one is better. Also, the maximum tax deduction is $3,000 per child (up to $6,000), while the HSA maximum is $5,000 regardless of the number of children. Have them e-mail me if they have any questions and I can discuss their specific situation offline.

  3. This is the first year we skipped this account. We did so because I did not expect my wife would work. Ultimately she became self employed. In theory her change in employment meant we could change elections but we waited to long so credit it is. Next year we’ll institute again. My one advice, if your situation changes act promptly to change contributions (or start)


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