Dependent Care FSA vs Dependent Care Tax Credit
To offset a portion of the high cost of childcare, consider a Dependent Care Flexible Spending Accounts (DCFSA) and the Dependent Care Tax Credit. Adviser Danielle Harrison explains what to keep in mind.
Key Takeaways
- For 2021 only, dependent care FSA contributions increased to $10,500/year (from $5,000) and the tax credit increased to $4,000-$8,000 per child; these benefits revert to old limits in 2022, so take full advantage this year
- You can use both the dependent care FSA and tax credit together without double-dipping—split your childcare expenses between them strategically rather than using one or the other exclusively
- Your childcare expenses must be with qualified providers (not siblings under 19, overnight camps, or private school K-12) and your earned income must equal or exceed the amount you claim for either option
- Check if your employer offers a dependent care FSA and whether they've adopted the increased $10,500 limit, since employers had discretion on whether to implement the 2021 changes
- Use Harrison Financial Planning's calculator or consult a financial advisor to determine your optimal strategy, since the 2021 tax law changes may make your existing childcare savings plan suboptimal
Dependent Care FSA vs Tax Credit: To offset a portion of the high cost of childcare, consider a Dependent Care Flexible Spending Accounts (DCFSA) and the Dependent Care Tax Credit. Adviser Danielle Harrison explains what to keep in mind.
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