Dependent Care Account (DCA): Basics & Benefits
Many of us know how challenging it can be to juggle work and our personal lives, especially if you are a caretaker for others. Thankfully, there is a financial tool that can help ease some of the stress associated with dependent care expenses — a Dependent Care Account (DCA). Let’s explore what a DCA is, who can benefit from it, and what costs it may cover.
What is a DCA
A DCA is an employer-sponsored flexible spending account that allows employees to set aside up to $5,000 in 2025 and up to $7,500 in 2026 ($2,500 if married filing separately in 2025 and $3,750 in 2026) annually in pre-tax dollars to cover eligible dependent care expenses. Contribution amounts may be limited by the employer’s plan design. These expenses can be used to care for your dependents such as children, or those incapable of caring for themselves. One of the most significant advantages of a DCA is the potential tax savings it offers. By contributing pre-tax dollars, you can reduce your taxable income. This can help lower your overall tax liability, meaning you may keep more of your hard-earned money for other expenses.
Eligible DCA Expenses
DCAs offer flexibility in spending the allocated funds, allowing you to tailor them to your needs. Some common examples of eligible expenses include:
- Licensed daycare centers
- Preschool programs
- Before-and-after school care
- In-home caregivers
- Babysitters or nannies
- Summer day camps
DCAs are also helpful during school breaks, when parents may encounter unexpected childcare costs. With a DCA you can plan for holidays and summer breaks for children under thirteen. Discover more about using your DCA during school breaks ►
Using DCA Funds
The funds you contribute to a DCA can be used for eligible dependent care expenses while you (and your spouse, if married) are working, looking for work, or are a full-time student. This includes caring for children under the age of 13 or caring for those who are incapable of self-care, like dependents older than 13 years of age with physical or mental disabilities. However, it's important to note that DCAs operate on a "use or lose" basis. Any funds remaining in your account at the plan year’s end may be forfeited. To avoid losing out, estimate your expected care expenses and contribute accordingly. Review your employer's DCA plan and Internal Revenue Code guidance to ensure you stay within the annual contribution limits.
Accessing DCA Funds
Once the funds are in your DCA account and after the care has been provided, you may be able to pay a provider directly or request a reimbursement. To submit a claim for your dependent care expenses, you will need to provide information specific to the care including dates of service, to whom the care was provided, who provided the care, and the amount charged for care. Reimbursement payments can typically be received via direct deposit, check, or other methods specified by your employer's DCA plan. Consult with your HR department to understand the specific processes and requirements.
With a Dependent Care Account (DCA) in place, it can help you take control of your dependent care expenses, reduce your tax burden, and find some much-needed balance in your work-life equation.
