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Dependable Dough: DCFSAs

Bharo Team

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You could be providing more for your family. Reduce your tax burden while managing the costs of caring for your dependents! That's the magic of Dependent Care Flexible Spending Accounts (DCFSAs). These are special accounts offered by some employers that allow you to set aside money from your paycheck before taxes are taken out. This lowers your taxable income, meaning you owe less in taxes overall.

A DCFSA lets you contribute pre-tax dollars specifically for dependent care expenses. Dependent Care FSAs focus on dependent care expenses, unlike Health Savings Accounts (HSAs) which are paired with high-deductible health plans for broader medical costs. DCFSAs can include childcare, after-school programs, summer camps, babysitting, and even adult care for dependents who can't care for themselves. For 2024, the contribution limit is set at $5,000 for singles and married couples filing jointly, and $2,500 for married couples filing separately.

There are a few things to keep in mind with DCFSAs. First, it's a "use it or lose it" system. Any money left in your DCFSA at the end of the plan year (usually your employer's fiscal year) is typically forfeited. This means careful planning is essential. You'll want to estimate your dependent care expenses for the year to avoid contributing more than you'll use.

Another thing to consider is that DCFSAs aren't for everyone. There's also a Dependent Care Tax Credit that may be a better fit depending on your situation. Consulting with a tax professional can help you decide whether a DCFSA or the credit is the best way to save on your dependent care costs.

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