For parents and legal guardians, paying for dependent care adds up quickly.
A Dependent Care Assistance Program (DCAP), also known as a Dependent Care FSA, is an employee-sponsored reimbursement program that lets employees use pre-tax dollars to pay for a dependent's day care and other necessary expenses, while the employee is at work.
Examples of eligible expenses for DCAP reimbursement:
- Licensed day care facilities
- Preschool programs
- After-school programs
- In-home child and dependent care services
- Elder/adult day care (Note: dependent care expenses for tax dependents over the age of 13 require proof of medical necessity)
- Special day camp expenses
Examples of expenses not eligible for DCAP reimbursement:
- Overnight camp
- Kindergarten tuition
- Lunches and food items
- Education programs (Note: includes school-based classes, like writing and math but also other learning programs like piano or tuba lessons, etc.)
- Activity fees
Typically, employees can set aside a portion of their paycheck, pre-tax, into a DCAP account. After employees pay for eligible expenses, they can use the DCAP funds to be reimbursed directly. Through Further, employees can take a picture of the day care receipt and submit it directly through the mobile app or online. Employees can also print and have day care providers sign a form in leu of receipts.
Like a standard Flexible Spending Account (FSA), DCAP funds do not roll over at the end of the year. Additionally, unless there is a qualifying life event, employees cannot change election amounts throughout the year. A DCAP worksheet can help to determine how much to set contribute to DCAP. The maximum contribution per household is $5,000 per year, regardless of the number of dependents.
Through a DCAP, employees save on taxes by using pre-tax dollars to pay for dependent care services they know they will be using while at work. For example, an employee that has a 30% tax rate and contributes the maximum $5,000 will have an annual tax savings of $1,500 by leveraging DCAP. DCAP is a great tool for parents and legal guardians to pay for dependent care with pre-tax dollars.