Change Dependent-Care FSA Contributions Midyear

Diverse group of preschoolers listening to a story.

(Image credit: Christopher Futcher)

My employer lets us contribute up to $5,000 a year to our dependent-care flexible-spending account, but I signed up to set aside only $3,000 this year. However, my son will be starting a new preschool next month that costs more than his day-care program. Does preschool still count as a dependent-care expense, and if so, can I increase my contribution in the middle of the year?

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Good news! Preschool costs count for dependent-care FSAs, and your situation qualifies for a midyear change in the contribution amount.

You can change the size of your dependent-care FSA contribution midyear only in certain circumstances, but “dependent-care FSAs are really quite flexible,” says Jody Dietel, chief compliance officer with WageWorks, which administers FSAs for employers. You can change the size of your contributions, for example, if you have a baby, adopt a child, or get married or divorced. You can also change contributions midyear if you move or if the cost of care changes, as in your situation. Ask your administrator what you need to do to change the amount. Some may require you to provide documentation with proof of the eligible change, such as a bill from the new preschool showing the cost, says Dietel.

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Money in the account can be used tax-free for preschool, day care, a nanny or babysitter, and even day camp for children under 13 while you and your spouse work. Starting with kindergarten, you can’t use money in the account to pay for school, but you can still use it to pay for before-school or after-school programs. You and your spouse together can contribute up to $5,000 to a dependent-care FSA for the year, not $5,000 each. And as with medical FSAs, you usually lose what you don’t use by the end of the year (some employers offer a grace period until March 15 to use the money).

Even if you weren’t able to make a change this year, you would be able to change your contributions for the following calendar year during open enrollment in the fall. Because your FSA contributions are pretax, they may reduce your take-home pay less than you expect.

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As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.