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Hey parents, do you have access to a dependent care FSA (flexible spending account) through your employer’s benefits?

If you do and you have childcare expenses, then you need to take advantage of this benefit!

A dependent care FSA allows you to pay for qualified childcare expenses on a pretax basis, reducing your taxable income and reducing the effective cost of your childcare.

You can contribute up to $5,000 per year through payroll deductions. Once you incur qualified childcare expenses (such as daycare or even camp), you can submit for reimbursement from your account to cover these expenses.

Contributions also are not subject to Social Security and Medicare taxes (FICA tax) saving an additional 7.65%.

Let’s take a look at an example of just the federal tax benefits assuming that you are in the 22% federal income tax bracket and you contribute the max $5,000 per year:

Federal tax savings (22%): $1,100

FICA tax savings (7.65%): $382

In this example, you would have a total tax savings of $1,482. In other words, you receive $5,000 worth of childcare for $3,518 out of pocket!

Be careful though, dependent care FSA funds are “use it or lose it” on an annual basis. Meaning, it is important to ensure that you will incur enough expenses each year to reimburse yourself for the costs – most plans allow a 90 day grace period at year end to submit reimbursement before you lose the funds.

If you’d like to learn more, you can schedule a complimentary Discovery Call to discuss your personal situation.

Disclaimer: This post is meant for educational purposes only and is not intended to be personal investing, legal, or tax advice. Please consult with a qualified professional before making any financial decision.