Dependent Care Flexible Spending Account (FSA)

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DEFINITION of 'Dependent Care Flexible Spending Account (FSA)'

A flexible spending account (FSA) designed to provide tax-exempt funds to employees for childcare or dependent expenses. Dependent care FSA contributions are typically exempt from federal income tax, FICA and state income taxes (in most states), which can save taxpayers a significant amount.

INVESTOPEDIA EXPLAINS 'Dependent Care Flexible Spending Account (FSA)'

A key to remember is that the maximum amount allowed is $5,000. So, if you contribute the maximum into a depedent care FSA and your tax rate is 30%, you get savings of $1,500 by using the FSA account. A list of eligible expenses can be found at the FSA website.

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