What Is a DCA Account? Dependent Care FSA Rules and Limits

A DCA account, short for Dependent Care Assistance account and often called a Dependent Care FSA, is an employer-sponsored benefit that lets you set aside pre-tax money from your paycheck to pay for child care, elder care, or other dependent care expenses while you work. For plan years beginning in 2026, you can contribute up to $7,500 per household, up from the previous $5,000 cap. Every dollar you route through the account avoids federal income tax, Social Security tax, and Medicare tax, which is where the savings come from.¹

How the Account Works

The account is authorized under Section 129 of the Internal Revenue Code, which allows employers to offer tax-free dependent care benefits through a written plan.² During open enrollment, you elect a contribution amount for the plan year. Your employer then withholds that amount in equal installments from each paycheck before calculating income and payroll taxes.

One feature catches a lot of new enrollees off guard: a DCA works on a pay-as-you-go basis. Unlike a health care FSA, where your full annual election is available on day one, you can only be reimbursed up to what has actually been deducted from your paychecks so far.³ Early in the plan year, your available balance may be smaller than the bills you are trying to cover.

How Much You Can Contribute in 2026

For tax years beginning after December 31, 2025, the maximum you can exclude from income through a DCA is $7,500 per household. If you are married and file separately, your limit is $3,750.²⁴ The cap is per household, not per child.

There is also an earned-income ceiling. The amount you exclude cannot exceed your earned income or your spouse’s earned income, whichever is lower. If your spouse earns $4,000 for the year, $4,000 is your effective limit no matter what you elected. A spouse who is a full-time student or physically or mentally unable to care for themselves is treated as having a small amount of monthly earned income, so you can still contribute in those situations.⁵

Some employers also set internal caps on higher earners to satisfy nondiscrimination testing under Section 129, so your personal ceiling may be lower than the statutory one. Your plan documents will say.

Who Counts as a Qualifying Dependent

Not every family member’s care costs can run through the account. The person receiving care must be one of the following:

Your child under age 13 when the care is provided, who lives with you for more than half the year.⁵
Your spouse or a dependent of any age who is physically or mentally unable to care for themselves and lives with you for more than half the year.⁶

Both you and your spouse, if you file jointly, must have earned income during the year, unless one of you is a full-time student or unable to self-care. If one spouse has no income and is neither of those, you generally cannot use the account.⁷

If you are divorced, legally separated, or living apart from the other parent, only the custodial parent can use a DCA for the child’s care. The custodial parent is the one the child lived with for the greater number of nights during the year, or, if the nights are equal, the parent with the higher adjusted gross income. This holds even if the noncustodial parent claims the child as a dependent on their tax return.⁵

What You Can Pay For

DCA funds cover care that lets you and your spouse work or look for work. The care itself doesn’t need to be elaborate; what matters is that it frees you to earn income. Eligible expenses commonly include:

Preschool and nursery school programs below the kindergarten level.⁵
Before-school and after-school programs for school-age children.
Summer day camp, even one built around a specialty like sports or computers.
A nanny, babysitter, or home aide for a qualifying dependent.
Adult day care for a disabled spouse or dependent at a licensed facility.

Several costs are specifically excluded:

Overnight camp is not a work-related expense.⁵
Kindergarten tuition and higher grades count as education, not care.
Summer school and tutoring are treated as educational.
Food, clothing, and entertainment don’t qualify unless they are minor, incidental, and inseparable from the cost of care.

Paying a Relative for Care

You can pay a relative and still be reimbursed, with a few exceptions. You cannot pay your spouse, anyone you claim as a dependent, or your own child who is under age 19 at the end of the year. You also cannot pay the other parent of your qualifying child if that child is under 13. Payments to other relatives, such as a sibling, aunt, grandparent, or an adult child age 19 or older who is not your dependent, can qualify.⁵

DCA or the Child and Dependent Care Tax Credit

The account and the child and dependent care tax credit both offset care costs, but you cannot use the same dollar of expenses for both. Amounts you exclude through a DCA are subtracted from what you can claim for the credit on IRS Form 2441.⁸

The DCA reduces your income before taxes are calculated, so it saves you income tax and payroll taxes. The credit reduces your tax bill after it is calculated and does nothing for payroll tax. For most families, particularly at higher tax brackets, the account produces the bigger savings. If your total care costs exceed the DCA limit, you may be able to claim the credit on the balance, but no expense can be counted twice.

Enrolling and Changing Your Election

You typically sign up during your employer’s open enrollment and lock in a contribution amount for the whole plan year. Once the year starts, you generally cannot change it. A limited set of qualifying life events allows a mid-year adjustment:

Marriage, divorce, legal separation, or death of a spouse.
Birth, adoption, placement for adoption, or death of a dependent.
A job change, termination, start of employment, or unpaid leave for you, your spouse, or your dependent’s caregiver.
A child aging out of eligibility by turning 13, or a change in a dependent’s disability status.
A move that affects available care.

Any new election has to correspond to the event. Adding a newborn justifies raising your contribution; a change in your streaming bill does not. A significant change in the cost or availability of care from a non-relative provider, such as a daycare raising its rates or closing, can also trigger an allowed adjustment.⁹

Getting Reimbursed

To pull money back out, you file a claim with your plan administrator, which is usually your HR department or a third-party benefits company. Each claim needs the provider’s name, address, and taxpayer identification number. You can gather that information on IRS Form W-10 or from an invoice or letterhead containing the same details.¹⁰

Most administrators take claims through an online portal or app. You submit the dates of service, the amount paid, and the provider details. Dates of service must fall inside the current plan year and cover time when you were actively working. Processing usually runs about five business days after the administrator receives the claim, with funds deposited to your linked bank account or mailed as a check.¹¹ Because contributions come in pay by pay, reimbursement cannot exceed your current balance. If the balance has not caught up to the bill, you may need to submit a partial claim and resubmit for the rest.

Use-It-or-Lose-It and the Grace Period

Money left in the account at the end of the benefit period is forfeited. The rule is baked into the tax code, so neither your employer nor any agency can waive it.¹²

Your employer may offer an optional grace period of up to two and a half months after the plan year ends, during which you can incur new eligible expenses and pay them from leftover funds.¹³ For a calendar-year plan, that extends through March 15. Most employers also allow a separate run-out window, often through the end of April, to submit claims for expenses already incurred during the plan year or grace period.¹²

Dependent care accounts do not offer the carryover option that some health FSAs allow. The grace period is your only cushion, and not every plan has one. Check your plan documents before setting a contribution amount, and when in doubt, estimate a little low rather than risk losing unused funds at year end.

1
Internal Revenue Service. Child and Dependent Care Credit and Flexible Benefit Plans
2
Office of the Law Revision Counsel. 26 USC 129 – Dependent Care Assistance Programs
3
FSAFEDS. Dependent Care FSA
4
FSAFEDS. New 2026 Maximum Limit Updates
5
Internal Revenue Service. Publication 503 (2025), Child and Dependent Care Expenses
6
Internal Revenue Service. Child and Dependent Care Credit Information
7
Internal Revenue Service. Publication 503 (2025), Child and Dependent Care Expenses – Section: You Must Have Earned Income
8
Internal Revenue Service. Instructions for Form 2441 – Child and Dependent Care Expenses
9
eCFR. 26 CFR 1.125-4 – Permitted Election Changes
10
Internal Revenue Service. Form W-10 – Dependent Care Provider’s Identification and Certification
11
FSAFEDS. Dependent Care FSA
12
FSAFEDS. What Is the Use or Lose Rule?
13
Internal Revenue Service. IRS Notice 2005-42 – Section 125 Cafeteria Plans