2016 Dependent Care FSA Limit
The 2016 Dependent Care FSA Limit is $5,000.
Effective 2016-01-01Source: Publication 15-B (2016), Employer's Tax Guide to Fringe Benefits (IRS)Verified 2026-09-01
Who it applies to
Employees who receive dependent care benefits through an employer-sponsored dependent care flexible spending account (FSA) or other dependent care assistance program.
What changed this year, and why
For 2016, the IRS sets the exclusion limit for employer-provided dependent care assistance at $5,000 per employee per year.
Common questions
- What is the dependent care FSA limit for 2016?
- In 2016, the exclusion limit for dependent care flexible spending accounts (FSAs) is $5,000 per employee per year. Married employees filing separate returns have a lower limit.
What counts as a dependent care benefit
Under IRS rules, the $5,000 exclusion applies to amounts that count as dependent care benefits. A benefit qualifies if it is any of these three types: amounts your employer paid directly to you or your care provider for the care of a qualifying person while you work; the fair market value of care in a daycare facility your employer provides or sponsors; or pre-tax contributions you made through a dependent care flexible spending arrangement (the FSA itself). Your salary may have been reduced to pay for those pre-tax contributions. You report the total of these benefits on Form 2441, Part III, line 12 to figure how much of the amount you can exclude from your income.
3. Pre-tax contributions you made under a dependent care flexible spending arrangement.
Publication 503 (2016), Child and Dependent Care Expenses (IRS)
Your exclusion is the smallest of five amounts
The amount you can exclude or deduct for dependent care benefits is limited to the smallest of five specific amounts: the total amount of dependent care benefits you received during the year, the total amount of qualified expenses you incurred during the year, your earned income, your spouse's earned income, or $5,000 ($2,500 if married filing separately). This means that even if you contributed more to your dependent care flexible spending arrangement, you can only exclude up to the smallest of these five amounts. The definition of earned income for this exclusion or deduction is the same as the definition used when figuring the credit, except that earned income for the exclusion or deduction does not include any dependent care benefits you receive. This limitation ensures that taxpayers cannot exclude more than their actual work-related expenses, their ability to earn income, or the statutory cap of $5,000 per household.
The amount you can exclude or deduct is limited to the smallest of: 1. The total amount of dependent care benefits you re- ceived during the year, 2. The total amount of qualified expenses you incurred during the year, 3. Your earned income, 4. Your spouse's earned income, or 5. $5,000 ($2,500 if married filing separately).
Publication 503 (2016), Child and Dependent Care Expenses (IRS)
A spouse with no earned income can wipe out the benefit
The earned income limit is a key restriction on dependent care benefits. If you are married and your spouse has no earned income for the year, your exclusion or deduction for dependent care benefits may be reduced to zero. The amount you can exclude or deduct is limited to the smallest of five amounts, including your spouse's earned income. When your spouse's earned income is zero, that becomes the smallest amount, which means you cannot exclude any dependent care benefits from your income. This rule prevents a two-income household from receiving a tax benefit when only one spouse works. However, there are special rules for students and spouses who are disabled or unable to care for themselves. The definition of earned income for this exclusion is the same as for the credit, except it does not include any dependent care benefits you receive. You can choose to include nontaxable combat pay in earned income when figuring this exclusion.
The amount you can exclude or deduct is limited to the smallest of: 1. The total amount of dependent care benefits you re- ceived during the year, 2. The total amount of qualified expenses you incurred during the year, 3. Your earned income, 4. Your spouse's earned income, or 5. $5,000 ($2,500 if married filing separately).
Publication 503 (2016), Child and Dependent Care Expenses (IRS)
Which child or adult the care has to be for
To claim the child and dependent care credit or to exclude dependent care benefits from your income, the care must be for one or more qualifying persons who are identified on Form 2441. A qualifying person is defined as your qualifying child who is your dependent and who was under age 13 when the care was provided; your spouse who was not physically or mentally able to care for himself or herself and lived with you; or a person who was not physically or mentally able to care for himself or herself, who lived with you for more than half the year, and whom you could claim as a dependent. If you are the noncustodial parent, special rules apply to children of divorced or separated parents or parents living apart. The care expenses must also meet other tests including the earned income test, the work-related expense test, and the care provider identification test. All qualifying persons must be properly identified on Form 2441 to claim the credit or exclusion.
Qualifying Person Test. The care must be for one or more qualifying persons who are identified on Form 2441.
Publication 503 (2016), Child and Dependent Care Expenses (IRS)
Using the FSA shrinks the dependent care credit
When you exclude dependent care benefits from your income through a dependent care FSA, those excluded benefits directly reduce the expenses available to claim the dependent care credit. The excluded benefits are not counted as work-related expenses, and they also reduce the dollar limit that otherwise applies to the credit. This prevents you from getting a double tax benefit - excluding the same dollars from income through your FSA and also claiming a credit for them. If you contributed the full $5,000 to a dependent care FSA and used it all, you would have no remaining work-related expenses to claim the credit on. You must weigh whether the FSA exclusion or the credit gives you a larger tax savings, keeping in mind that you cannot use the same expenses for both.
Effect of exclusion on credit. If you exclude dependent care benefits from your income, the amount of the exclu- ded benefits: 1. Isn't included in your work-related expenses, and
Publication 503 (2016), Child and Dependent Care Expenses (IRS)
The statement your employer must give you, and going over the cap
Your employer must provide you with a Form W-2 or similar statement showing in box 10 the total amount of dependent care benefits provided to you during the year under a qualified plan. This reporting requirement helps you properly report the benefits on your tax return and calculate any exclusion or deduction you are entitled to claim. If your employer provided dependent care benefits exceeding $5,000, your employer will also include the excess amount in your wages shown on your Form W-2 in box 1. This means that benefits over $5,000 are taxable income to you and are subject to income tax withholding. For example, if your employer contributed more than $5,000 to your dependent care flexible spending arrangement, the amount over $5,000 would be included in your taxable wages in box 1 of your Form W-2. You should review your Form W-2 carefully to ensure the amounts are correctly reported and to understand how much of your dependent care benefits are excluded from your taxable income versus how much is subject to tax.
Statement for employee. Your employer must give you a Form W-2 (or similar statement), showing in box 10 the total amount of dependent care benefits provided to you during the year under a qualified plan. Your employer will also include any dependent care benefits over $5,000 in your wages shown on your Form W-2 in box 1.
Publication 503 (2016), Child and Dependent Care Expenses (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
Publication 15-B (2016), Employer's Tax Guide to Fringe Benefits (IRS)
- Exclusion limit
up to $5,000 of benefits received under a dependent care assistance program each year.