How does a dependent care FSA save tax?

Contributions are deducted from your pay before federal income tax, Social Security and Medicare tax, and usually state income tax are calculated. So every dollar you contribute avoids tax at your combined marginal rate.

What is the annual contribution limit?

The dependent care FSA limit is $5,000 per household for most filers, or $2,500 if you are married filing separately. This calculator caps the contribution at $5,000 and warns if you exceed it.

What is the FICA saving?

FICA is Social Security tax of 6.2% (up to the wage base) plus Medicare tax of 1.45%, totaling 7.65%. Dependent care FSA contributions also escape FICA, which is a saving most people forget about because it is a flat rate on top of income tax.

Can I use both the FSA and the Child and Dependent Care Credit?

You can use both but not on the same dollars. Amounts run through the FSA reduce the expenses eligible for the credit. For many higher earners the FSA saves more because it also avoids FICA, but compare both before deciding.

What happens to unused FSA money?

Dependent care FSAs are generally use-it-or-lose-it. Estimate your real childcare spend carefully, because unspent funds at the end of the plan year (plus any grace period) are usually forfeited.

US Dependent Care FSA Tax Savings Calculator

A dependent care FSA lets you pay for childcare or other qualifying care with pre-tax dollars. Because the money skips federal income tax, FICA, and most state income tax, the savings can be substantial. This calculator estimates them at your marginal rates.

How it works

Every dollar contributed avoids tax at your combined marginal rate. FICA is a flat 7.65% (Social Security 6.2% plus Medicare 1.45%) that applies on top of income tax:

contribution = min(amount, 5000)
federal_save = contribution × federal_marginal_rate
fica_save    = contribution × 0.0765
state_save   = contribution × state_rate
total_save   = federal_save + fica_save + state_save

The effective savings rate is total savings divided by the contribution.

Tips and notes

Contributing the full $5,000 only makes sense if you will actually spend it, since dependent care FSAs are typically use-it-or-lose-it. The FICA saving is what often tips the FSA ahead of the Child and Dependent Care Credit for two-earner households, but you cannot double-dip the same dollars on both. If your state has no income tax, set the state rate to zero. Verify your exact federal marginal bracket and plan rules with your HR department or a tax advisor before enrolling.