How does a dependent care FSA work?

Question

How does a dependent care FSA work?

In: 1

Answer 1

You have money deducted from your paycheck each week and put into an FSA account. This is pretax.

You then pay for dependent care out of pocket. The FSA may issue a debit card for you but this isn’t guaranteed.

You submit a claim to your FSA to get reimbursed. They send you a check.

If you don’t have a debit card, you ultimately end up paying double, but getting half back in reimbursement. The benefit is that you lower your taxable income. So if your effective tax rate is 10%, and you FSA $5000 over the course of a year, you would save $500 a year.

There is a limit, I think $5050(?) a year as of 2022.