Summer can create a major child care challenge for working parents. When school is out, employees may need to pay for day camps, daycare programs, babysitters and other care that allows them to continue working. In fact, the national average price of child care reached $13,184 in 2025, according to Child Care Aware of America.
Employers can help by offering a Dependent Care Flexible Spending Account, or DCFSA. This tax-advantaged benefit allows eligible employees to set aside pre-tax dollars for qualifying child and dependent care expenses, helping their money go further while they manage the additional costs that often come with summer.
For the 2026 tax year, employees may exclude up to $7,500 in dependent care assistance from taxable income, or $3,750 if married and filing separately. The employer’s written plan must adopt the applicable limit, and individual limits also may be affected by earned income and other eligibility rules.
A DCFSA can be a valuable addition to an employer’s benefits package, but offering the account is only the first step. Employees also need clear information about enrollment, eligible care providers, reimbursable expenses, required documentation and claim deadlines.
Let’s take a look at what employers should know about offering a DCFSA and answer common questions about summertime dependent care expenses.
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Child care is not simply a personal concern for employees. When dependable care is unavailable or unaffordable, it can affect attendance, scheduling, productivity and an employee’s ability to remain in the workforce.
A DCFSA gives employers a practical way to help. Employees can use pre-tax payroll deductions to pay eligible care expenses that allow them and, when applicable, their spouses to work or look for work.
Offering a DCFSA may help employers:
Qualified pre-tax contributions generally reduce an employee’s taxable wages. That can create tax savings for participating employees and may reduce the employer’s payroll tax expense.
Like other tax-advantaged benefits, however, a DCFSA must be established and administered according to the employer’s written plan. Employers should also make sure employees understand that participation rules, contribution limits, and reimbursement procedures apply.
Before employees register for camps or make other summer care arrangements, employers should remind them how DCFSA enrollment and eligibility work.
For benefits administered through Axcet, employees elect their DCFSA contributions during open enrollment for coverage beginning Jan. 1.
Employees should estimate their anticipated care expenses carefully because their election generally remains in place for the plan year, and unused funds may be forfeited according to the plan’s rules.
Employees whose care costs or arrangements change during the year should contact Axcet’s benefits team. The written plan controls whether an election may be adjusted and what documentation is required.
Business owners should be aware that they may not be eligible to participate in the pre-tax account themselves.
Under Axcet-administered plans, owners of LLCs and S corporations generally cannot participate in the DCFSA on a pre-tax basis. The business may still offer the benefit to its eligible employees.
Because ownership structures and tax treatment can affect eligibility, business owners should confirm their status with Axcet’s benefits team and their tax adviser.
The basic purpose of a DCFSA is to help employees pay for care that allows them to work or actively look for work.
For married employees, the spouse generally also must be working or looking for work. Exceptions may apply when the spouse is a full-time student or is physically or mentally unable to care for themselves.
Eligible care most commonly involves a child younger than 13, but the account also may cover care for a spouse or another qualifying dependent who cannot care for themselves.
The provider matters, too. Employees cannot use DCFSA funds to pay:
Employees also will need identifying information from the care provider and documentation showing when the care was provided and how much it cost.
With those basic rules in mind, here’s how a DCFSA applies to common summertime care arrangements.
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Summer expenses can be particularly confusing because camps, educational programs, family caregivers and prepaid registration fees do not all receive the same treatment.
Summer day camp expenses generally qualify when the camp provides care that allows the employee and spouse, if applicable, to work or look for work.
The camp can focus on a particular activity. For example, a sports, computer, art or recreational day camp may qualify even though it includes instruction or entertainment, provided its primary purpose is still the child’s care and supervision.
Food, activities and other incidental costs included in the camp’s basic fee also may qualify when they cannot be separated from the cost of care.
Overnight camp expenses do not qualify for DCFSA reimbursement.
The IRS does not consider overnight camp to be a work-related dependent care expense, even when the employee works while the child is away.
Summer school tuition and tutoring programs generally are educational expenses rather than care expenses and therefore do not qualify.
The distinction can become important when comparing a specialty day camp with a tutoring program. A soccer or computer day camp may qualify when it primarily provides supervision and care. A program attended specifically for academic instruction generally does not.
Suppose an employee takes a short vacation but must continue paying the daycare center’s regular fee to hold the child’s place. Those expenses may remain eligible even though the employee is temporarily away from work.
IRS guidance treats an absence of two weeks or less as a short, temporary absence. An absence longer than two weeks also may qualify, depending on the circumstances. The employee generally must have been required to continue paying for the care during the absence.
This does not mean employees can claim new childcare expenses incurred solely so they can take a vacation. The exception applies when an existing care arrangement requires continued payment during a short absence.
An employee may be able to use DCFSA funds to pay an adult child or an older sibling of the child receiving care.
If the caregiver is the employee’s child, the provider must:
The employee also will need the caregiver’s name, address and taxpayer identification number—generally the caregiver’s Social Security number—to meet applicable plan documentation and tax-reporting requirements.
For example, an employee’s 20-year-old daughter may be an eligible provider for her younger sibling if the employee and spouse cannot claim the older daughter as a dependent.
A grandparent generally may provide eligible care, but the family relationship alone does not automatically make the expense reimbursable.
The grandparent cannot be someone the employee or spouse can claim as a dependent. The care also must meet the usual work-related requirements.
As with any individual caregiver, the employee generally will need the grandparent’s name, address and taxpayer identification number—usually a Social Security number—for plan documentation and tax-reporting purposes. Employees may use IRS Form W-10 to request the required identifying information from a care provider.
Depending on where and how the care is provided, paying an individual caregiver also may create household-employment tax or reporting considerations. Employees should consult a tax professional when necessary.
Required application fees, registration fees and deposits may qualify when an employee must pay them to obtain eligible dependent care.
However, reimbursement generally cannot occur until the related care has been provided. If the employee cancels the arrangement and the child never attends, a forfeited fee or deposit is not an eligible DCFSA expense.
Nursery school, preschool and similar programs below the kindergarten level generally are considered care rather than education.
The expenses may qualify even when the program includes educational activities, meals or other incidental services that cannot be separated from the childcare fee.
Tuition for kindergarten or a higher grade does not qualify because the IRS considers it an educational expense.
However, separate charges for eligible before-school or after-school care may qualify when the program allows the employee and spouse, if applicable, to work or look for work.
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Employees should keep documentation showing:
The employer’s plan administrator may require receipts, invoices, claim forms or additional documentation before approving reimbursement.
Employees should review their DCFSA plan documents because deadlines, submission procedures and substantiation requirements can vary by plan.
Even eligible expenses can be delayed or denied when employees misunderstand the reimbursement process or do not provide the required documentation.
Common mistakes include:
Employers can help prevent confusion by reminding employees about documentation requirements, reimbursement procedures and submission deadlines before summer childcare and camp programs begin.
For additional guidance, employees can review IRS Publication 503, Child and Dependent Care Expenses.
Offering a DCFSA provides limited value if employees do not understand when to enroll, which expenses qualify or how to submit a claim.
Employers should communicate with employees during open enrollment and again before summer. Important reminders include:
Employers also should avoid presenting the $7,500 federal exclusion as an amount every participant automatically can use. The employer’s plan must permit that election, and an employee’s available exclusion may be affected by filing status, earned income and other tax rules.
Clear communication can help employees make informed elections, avoid denied claims and receive the full value of the benefit the employer offers.
For employers looking for a meaningful way to support working parents, a Dependent Care FSA deserves serious consideration.
This valuable employee benefit helps eligible employees pay qualifying care expenses with pre-tax dollars and may reduce payroll taxes for the business. Just as important, it gives employees practical support for one of the most significant expenses many working families face.
Employers should begin evaluating the benefit well before open enrollment. Establishing or updating a DCFSA may involve plan-document changes, eligibility decisions, nondiscrimination testing, payroll coordination and employee education.
Axcet HR Solutions can help businesses evaluate their benefit options, establish compliant plan practices and communicate DCFSA requirements clearly to employees.
Are you offering a Dependent Care FSA? If not, Contact Axcet HR Solutions to discuss whether it belongs in your employee benefits package.
Written by
Jeanette Coleman, SPHR, SHRM-SCP, is the Director of Human Resources at Axcet HR Solutions, where she has contributed her expertise for over 21 years.
As a leader in the HR industry, she holds advanced certifications as a Senior Professional in Human Resources (SPHR) and SHRM-Senior Certified Professional (SHRM-SCP). Jeanette oversees HR strategy and operations, ensuring Axcet delivers exceptional HR services that help small and mid-sized businesses stay compliant and grow.
With a Master’s degree in Human Resource Management from Keller Graduate School and a Bachelor of Science in Business Administration from Kansas State University, Jeanette is well-equipped to lead and support clients in navigating complex HR challenges.
Throughout her 15-year tenure as Director of Human Resources, she has been instrumental in positioning Axcet as the Midwest’s largest and premier Professional Employer Organization (PEO). Her previous roles at Axcet include Director of Employee Benefits and Senior HR Consultant, where she gained extensive experience in HR outsourcing, and employee risk management.
Jeanette’s expertise has been recognized through industry and regional publications. She co-authored the article “High-Touch in the Age of High-Tech: How PEOs Can Embrace AI Without Losing Their Humanity” (https://peoinsider.org/articles/high-touch-in-the-age-of-high-tech-how-peos-can-embrace-ai-without-losing-their-humanity/) for PEO Insider (March 2026), alongside Jo McClure, and was featured in Ingram’s Magazine in a Q&A (https://ingrams.com/article/qa-with-jeanette-coleman/) discussing generational change, technology, and workplace culture. These contributions reflect her perspective on balancing innovation with the human side of HR.
Jeanette’s leadership reflects her deep commitment to helping businesses thrive through strategic, compliance-driven HR solutions. Through her writing, she shares insights on HR strategy, compliance, and best practices to help employers confidently manage their workforce.
Published in: PEO Insider and Ingram's
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