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How We Used Daycare To Save For Christmas

Is there anything worse than having to pay for daycare?  Yes, plenty.  But, it still hurts a lot.  Not only do we have to leave our most precious kids with total strangers, we also have to pay an arm and a leg for it… to the tune of 28 thousand dollars a year!  Thanks to the Dependent Care FSA (Flexible Spending Account), we can turn some of that cash drain into Christmas cheer.

What is the dependent care FSA?

The Dependent Care FSA is a pre-tax savings benefit offered by your employer to put away money for expenses related to dependents- children less than 13, or older dependents residing in the house (elderly parents or a spouse that requires care).  The yearly max is $2500 or $5000 depending on the couple and how they file taxes.

We participated through my employer’s FSA this past year.  The FSA money  is deducted from my paycheck biweekly.  So, the cash we put away is sheltered from federal, state, social security, and medicare taxes. 

Not only that, the FSA lowers our taxable income.  

How do we get the money?

We save our daycare receipts (no dearth of those) and turn them in to the FSA administrator for a refund.  My company used Jaeger-Flynn and their online platform was very easy to use. 

So, this is how we saved for Christmas this year.  We elected for the FSA as a paycheck withdrawal and then cashed in the refund just in time for Christmas.  We decided to put $1000 in the Christmas fund and the rest towards student loans. Pretty painless.


There is also a Child and Dependent Care credit (CDCC) offered by the government automatically- capped at $3000 for one dependent and $6000 for 2 or more.  Understandably, we can’t double dip. The expenses claimed on the FSA cannot be claimed for this credit.

To help you decide, the CDCC credit is highest at lower income levels and gets less advantageous at higher income levels.  The FSA also has the added advantage of lowering taxable income, which can mean more savings for high income earners.  

We ran the options by our accountant prior to investing to make sure it was the right thing for us (always recommended).

In Conclusion

With the dependent care FSA, we can turn the cash sucking vampire that is daycare into a way to finance Santa.  Woot!

Photo by Guilherme Stecanella on Unsplash

Have  you used the dependent care FSA? Share your experience in the comments below!

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Standard disclaimer:  For entertainment purposes only.  Do your research.  Consult a financial planner and an accountant prior to making major money decisions.


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