What is a Dependent Care FSA (DCA)?

A dependent care flexible spending account (DCA) is a vehicle for employees to use pre-tax funds for certain childcare expenses during the plan year.

 
 

How it Works

Although it may sound confusing at first, the plan really is simple:

  1. First, estimate your childcare expenses for the year;
  2. Next, decide how much you want to deposit into the DCA;
  3. Each pay period, the amount you designate is withheld from your paycheck before taxes are taken out and deposited into your own individual account.
  4. After you incur eligible expenses and submit your claims, the money in your account is paid back to you tax-free.

Examples of Qualified Expenses

For dependents that live with you and require care while you work (among other requirements), the following programs are examples of qualified expenses:

  • Licensed Daycare Centers
  • Private Sitter
  • Day Camp
 

Tax Savings

Employees make contributions through a pre-tax salary conversion agreement, which means that the employee does not pay Social Security, Medicare, federal, state, or local taxes on the amount contributed each year.  The federal government sets maximum contribution amounts each year.

Employers do not pay FICA (Social Security + Medicare) taxes on the amounts contributed, which means 7.65% savings on the total contributions made by their employees each year.