Babysitting and child care: FSA Eligibility

Babysitting and child care is not eligible for reimbursement with a flexible spending account (FSA), health savings account (HSA), health reimbursement arrangement (HRA) or a limited care flexible spending account (LCFSA). However, babysitting, child care and nursing services for a healthy baby do not qualify as medical care, but may be covered under a dependent care flexible spending account (DCFSA) if specific requirements are met, including that the guardian(s) are gainfully employed during the time a qualifying child is cared for, a full-time student(s) or searching for gainful employment.

How is babysitting/child care covered?

Consumer spending accounts, such as FSAs, HSAs, HRAs and others are designed to cover products and services that prevent or alleviate a specific medical condition with tax-free income, so babysitting and child care would not fall into this category. However, because child care expenses are such heavy burden for some families, dependent care flexible spending accounts are another option to give families a means of paying for child care with tax-free income.

How do DCFSAs work?

A DCFSA allows parents to put aside up to $5,000 (or $2,500 for married individuals filing separately) and are offered through employers for workers to use pre-tax income to cover a wide variety of child care expenses, including babysitting. By definition, a DCFSA allows parents or caregivers to pay for eligible expenses for a child under the age of 13, disabled spouse, elderly parent or any other dependent who is physically or mentally incapable of self-care. In turn, this support must give the account holder or spouse (if married) the ability to work, look for work or go to school full-time.

How are babysitting and child care expenses filed in a tax return?

To receive the full tax benefits through the use of a DCFSA, account holders must report to the IRS on your tax return the name, address and social security number (or other tax payer identification number if necessary) of any babysitter who provides services during each account year. Additionally, the IRS also offers a child care tax credit that offers a 20 to 35 percent kickback on up to $3,000 (or $6,000 if you have two or more children), but this may not be the best option for lower-income families who typically fare better with a DCFSA. Before making a decision, meet with a tax professional to go over your options, or use our FSA Calculator to find out which will save you the most money over the long run.

Eligibility Table

Flexible Spending Account (FSA) Limited Care FSA Dependent Care FSA Health Savings Account (HSA) Health Reimbursement Account (HRA)

Eligible

Eligible with Rx

Eligible with LMN

Not Eligible

Specifically Not Covered

Not eligible with an FSA, Limited FSA, HRA or HSA.

 


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