Tax Tip #282

Employers seeking to offer family-friendly benefits may want to consider flexible spending accounts (FSAs) for dependent care. These accounts allow employees to make pre-tax contributions through payroll withholding to help cover eligible expenses. 

The annual contribution limit, currently $5,000, will rise to $7,500 in 2026. FSA contributions reduce employees’ income and payroll taxes, as well as employers’ payroll taxes. Withdrawals used to pay qualified expenses are tax-free, including expenses for care for a child under age 13.

A dependent care tax credit is available to taxpayers who do not have access to an employer-sponsored FSA. However, when given the choice, the FSA is usually a better option.

Have this option and want to know for sure which is best for your situation? Reach out to a team member for assistance.