Using Dependent Care FSAs: What Expenses Can Be Reimbursed?

Dependent Care Flexible Spending Accounts (FSAs) are a great way to save on taxes while covering the costs of child or dependent care needed to work. With contribution limits increasing in 2026, now is a good time to review what’s eligible—and what’s not.

What’s Changing in 2026

Beginning January 1, 2026, the maximum annual contribution limit for dependent care FSAs increases to $7,500 (or $3,750 for married individuals filing separately). This change offers employees more tax-free savings opportunities to offset rising care costs.

How Dependent Care FSAs Work

Dependent care FSAs—also known as dependent care assistance programs (DCAPs)—allow employees to set aside pre-tax dollars from their paychecks to pay for work-related dependent care expenses. Employers can also contribute, subject to nondiscrimination rules.

To qualify for reimbursement, an expense must:

1. Be primarily for the care of a qualifying individual (for example, a child under age 13), and
2. Be incurred so that you (and your spouse, if married) can work or look for work.

Who Qualifies as a Dependent

A “qualifying individual” can include:

• Your child under age 13
• Your spouse who is physically or mentally incapable of self-care
• A tax-dependent adult who cannot care for themselves

Note: The dependent must live with you for more than half of the year. Generally, noncustodial parents cannot claim expenses for dependent care FSA reimbursement.

What Expenses Qualify

Eligible expenses are those directly related to care—not education, meals, or entertainment. Here are some examples:

✅ Eligible Expenses

• Day care or nursery school (below kindergarten level)
• Before- or after-school care
• Day camps (including specialty camps like sports or art)
• Babysitters (not family members under 19 or your spouse)
• Elder day care
• Application or agency fees related to dependent care
• Nanny or au pair services
• Transportation provided by the care provider

🚫 Not Eligible

• Overnight camps
• Kindergarten tuition or higher education
• Private lessons or tutoring
• Child support payments
• Meals, lodging, or clothing (unless incidental to care)
• Transportation for the caregiver to get to your home

Work-Related Requirement

Dependent care expenses must be incurred to allow you—and your spouse, if applicable—to be gainfully employed. That includes working full-time, part-time, or actively seeking work. Spouses who are full-time students or incapable of self-care are considered gainfully employed for this purpose.

Other Rules to Know

• “Use It or Lose It” Rule: Unused funds at the end of the plan year are forfeited unless your employer offers a 2.5-month grace period.
• Timing: Expenses are eligible only when the care is actually provided—not when you’re billed or pay.
• Substantiation: Claims must include third-party documentation (like a detailed receipt) to verify the date, type, and cost of care.

Employer Considerations

Employers offering dependent care FSAs must have a written plan that defines eligible expenses, communicates participation terms, and ensures claims are properly verified. A clear plan protects both the company and employees while maximizing the program’s tax advantages.

The Bottom Line

Dependent Care FSAs are a valuable benefit that can significantly reduce taxable income and ease the financial strain of dependent care. Understanding which expenses qualify—and keeping good records—ensures employees get the most from their accounts while staying compliant with IRS rules.