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Tax-free Accounts & Dependant Care Assistance Programs
Tools for Parents:| Find child care | Tax-free accounts | Using tax credits | Sliding fee tuition | Scholarships | Parenting Education | Parent Resources |
Program description:
Tax-free accounts, also called dependent care assistance programs (DCAP) and flexible spending accounts (FSA), are set up by participating employers to allow employees to create tax-free savings accounts for certain costs by contributing money through payroll deductions. The deduction lowers your taxable income allowing you and your employer to save money for the year by paying less Federal and Social Security taxes.
The employee determines how much to set aside for the year based on an annual estimated cost of child care. That amount is divided by the number of pay periods per year, and then set aside before taxes and placed into your DCAP account.
To apply:
Contact your employer's Human Resources office to see if your employer offers a Dependent Care Assistance Plan and how to apply. If your employer does not currently offer a DCAP, refer them to this website, or give them a printed version of this page, for information on how to create a DCAP plan for employees.
Additional details:
- $5,000 per family is the maximum amount that can be deducted each year.
- Dependent care expenses are only reimbursable if they are for dependent children up to age 13 or for disabled children who live with the employee.
- The money deposited in your DCAP or FSA account is used to reimburse your child care expenses or may be used to pay the provider directly by the Employer, depending on the Employer’s plan.
- DCAP accounts interact with Social Security, State and Federal tax deductions. This means that parents may need to choose one option over another in order to receive the greatest savings. Generally, the DCAP will provide greater tax savings to those employees whose income exceeds $25,000. Employees with income below $25,000 will find greater tax savings through the federal child care tax credit.
- According to federal law, any money not used for reimbursement and left in a DCAP account at the end of the year is forfeited to the employer to offset administrative expenses.
- Dependent care expenses can only be reimbursed if they were incurred to allow both the employee and his/her spouse to work.
The Minnesota Child Care Resource and Referral Network is a member of the National Association of Child Care Resource and Referral Agencies and is funded in part by the Minnesota Department of Human Services. |
To connect to your local Resource and Referral agency: 888-291-9811 Find us on Minnesota Child Care Resource & Referral Network Email: info@mnchildcare.org © 2012 Minnesota Child Care Resource & Referral Network
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