Dependent Care Accounts

The difference between a healthcare FSA and a dependent care FSA (DCFSA) lies in the eligible expenses and contribution limits. In a healthcare FSA, often simply called an FSA, employees use the funds for eligible medical expenses, such as visits to their primary care physician and dental treatments. A DCFSA covers dependent care expenses for qualifying dependents, such as babysitting or adult daycare expenses. These expenses should be work-related dependent care, meaning the care services are needed because of the employee’s work.

The 2026 contribution limit for a healthcare FSA is $3,400. Meanwhile, a DCFSA has a maximum salary deferral of $7,500 for those who are single or married but filing jointly. The limit is $3,750 for married couples filing separately.

Employees can use a dependent care FSA for eligible dependent care services. For dependents under 13 years old, examples of eligible expenses include:

• Babysitting and nanny expenses.
• Before or after school care expenses.
• Nursery, daycare, and preschool expenses.
• Summer camp expenses.

Employees can also pay for the care of their spouse or family member, provided that they live with them and that the dependent is physically or mentally incapable of self-care activities.

Qualifying dependents for a DCFSA include:

• Children under 13 years old.
• Spouse or another tax dependent, regardless of age, who is physically or mentally incapable of self-care.

Covered employees must meet specific conditions to claim the expenses:

• They must have incurred the expenses for them to be able to work, look for work, or attend school full-time.
• They cannot pay their spouse, a dependent, or their child under 19 for the care services.
• Their tax filing status must either be single, married filing separately, married filing jointly, or a qualifying widow or widower with a dependent child.
• They must live with the dependent, whether spouse, child, or another family member, for more than half the year.
• The child must have been under 13 years old when the care happened.

Employees and employers can contribute a maximum of $7,500 for employees who are single or married filing jointly. The limit is halved to $3,750 for married couples filing separately.

Dependent care accounts help with employee retention, as they enable employees to maximize their spending power by contributing pretax dollars to their account while also reducing expenses for eligible care services. With increasing out-of-pocket costs and the difficulty of balancing work and life, offering a DCFSA signals to potential employees that employers value their family and financial well-being.

Specifically, the benefit can help employees save up to 30% on dependent care services. Since 86% of private-sector employees work for establishments with employer-sponsored health insurance, employers gain a competitive advantage by showcasing that they can also cater to their employees’ healthcare needs.