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Overwhelming Child Care Costs? Consider a Dependent Care FSA

overwhelming childcare costs

From diapers to college, raising a child is expensive. And for parents of younger kids, overwhelming child care costs can truly eat up their budget.

According to’s annual Cost of Care Survey, 32 percent of families say they spend 20 percent or more of their annual household income on child care. The average weekly rate ranges from $200 at a family child care center to a whopping $565 for a nanny.

But there’s an easy way for you to cut down a bit on the cost through a benefit that might be available from your employer -- a Dependent Care Flexible Spending Account.

A Dependent Care FSA lets you divert a portion of your pre-tax salary to a special account, which you can use to pay for child care so that you can work. According to the U.S. Bureau of Labor Statistics, about 39 percent of workers have access to an employer-sponsored dependent care account.

Would a Dependent Care FSA help your family cut overwhelming child care costs? Maybe not completely, but even a little bit of savings adds up! 

Here are answers to some common questions about the employment perk.

How much can I set aside in a Dependent Care FSA?

It can vary from year to year. In 2019, the limit is $2,500 or $5,000 per year depending on how you file your taxes. A single parent, for instance, can contribute up to $5,000 per year. But a married parent who files their taxes separately from their spouse is limited to $2,500. The Society for Human Resource Managementspells out the caps in more detail.

How much can you really save using a Dependent Care FSA?

It depends on your tax bracket and how much you spend on child care, but you could save big money when you use a Dependent Care FSA.

Here’s why: When you use your pre-tax salaryto fund the account, you reduce your taxable income, which means you pay fewer taxes. Generally speaking, by using those pre-tax dollars, you could save about 30 percent on any eligible expenses.

Consider these numbers, according to WageWorks’ Dependent Care FSA calculator:

A married couple who files jointly and is in the 30 percent tax bracket will save $125 per month -- or $1495 per year  when they contribute $5,000 to a Dependent Care FSA.

And a single parent, also taxed at 30 percent, will save about $60 per month -- or $750 per year  when they put $2,500 in the account.

What can it be used for?

Eligible expenses include before and after school care, babysitting and nanny expenses, daycare, nursery school, preschool and summer day camp for kids who are under the age of 13, according to FSAFEDS, the official FSA site for federal employees. They also can be used to care for a spouse or other adult relative who is unable to care for themselves and lives in your home.

You can’t use money from the account to pay for activities such as dance lessons, field trips, tutoring and similar expenses. The FSAFEDS site also lists those non-eligible expenses.

Do I lose it if I don’t use it?

You will, and that’s a big drawback of a flexible spending account. But that doesn’t mean you shouldn’t take advantage of the account. Instead, you should carefully consider how much you’ll spend on child care in the next year and use that information to determine how much to contribute toward your FSA. Just be sure to remember that once a child hits 13, you no longer can take advantage of the account.

If a Dependent Care FSA is the right option for you, check in with your employer’s human resources department to find out when you can sign up. Once you do, you’ll watch those overwhelming child care costs decrease. And, let’s face it, for parents, every little bit helps.

The CESI Team is committed to helping you reach your financial goals. If debt keeps you from living the life you dream of, contact us for a free debt analysis today and get started on the road to a brighter future!


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