FSA vs the child-care credit: which saves your family more on daycare
| FSA | Credit |
|---|
Working parents paying for daycare have two tax shelters aimed at the same bill — the Dependent Care FSA (pre-tax payroll dollars) and the Child and Dependent Care Credit — and you largely must choose. Above modest incomes the FSA usually wins because it skips FICA as well as income tax; below ~$43k the credit's higher percentage competes; and for big families with big bills, a split captures both. This calculator scores all three strategies for your exact numbers.
| Dependent Care FSA | Child & Dependent Care Credit | |
|---|---|---|
| How it works | Up to $7,500/household pre-tax through payroll | 20–35% credit on up to $3,000 (1 kid) / $6,000 (2+) of expenses |
| Your savings rate | Bracket + 7.65% FICA (29.65% in the 22% bracket) | 20% for AGI above $43k; up to 35% at the lowest incomes |
| Requires employer plan? | Yes — enroll at open enrollment or a life event | No — claimed on Form 2441 by anyone eligible |
| Risk | Use-it-or-lose-it (grace periods vary) | None |
On the SAME dollars, never. On different dollars, yes: FSA dollars reduce the credit's expense cap one-for-one, but families with 2+ kids and costs beyond the FSA max often have leftover cap — the split strategy this calculator scores.
Forfeited — dependent care FSAs have no rollover (unlike some health FSAs); at best a 2.5-month grace period. Estimate conservatively; mid-year enrollment changes are allowed for qualifying life events like a new child or provider change.
Day camps yes — including sports and specialty camps — because they enable parents to work. Overnight camps no. This makes summer the classic season for burning FSA balances.
Only with a paper trail: claiming requires the provider's tax ID, which surfaces household-employer obligations (the 'nanny tax': Social Security/Medicare above ~$2,800/yr). Legit payroll costs ~8-10% more and unlocks ~30% savings — usually net positive, and it protects the nanny too.
The credit (no employer needed), and it's worth asking HR — dependent care FSAs cost employers almost nothing to add and save them FICA on every dollar employees contribute. Companies add them when asked by enough parents.
It's per household, not per spouse ($3,750 each if filing separately). Both spouses' employers offering FSAs doesn't double the cap — coordinate at enrollment.
Yes — all figures compute locally in your browser.
Daycare is many families' second-biggest bill; a correct FSA-vs-credit choice claws back $1,500–2,500 of it every year for one enrollment form. Run the numbers before open enrollment closes — that deadline is the whole game.