2017 Dependent Care FSA Limit
For 2017, the Dependent Care FSA Limit figures are $5,000 (Exclusion limit) and $2,500 (Exclusion limit, married filing separately).
Effective 2017-01-01Source: Publication 15-B (2017), Employer's Tax Guide to Fringe Benefits (IRS)Verified 2026-09-03
Compared with 2016
Every figure on this page is unchanged from 2016.
| Item | 2016 | 2017 | Change |
|---|---|---|---|
| Exclusion limit | $5,000 | $5,000 | +$0 (+0.0%) |
| Exclusion limit, married filing separately | $2,500 | $2,500 | +$0 (+0.0%) |
Who it applies to
Employees who participate in a dependent care flexible spending account or other employer-sponsored dependent care assistance program
What changed this year, and why
The exclusion limit for employer-provided dependent care assistance benefits, including dependent care flexible spending accounts, is $5,000 for 2017.
What counts as a dependent care benefit
Three types of assistance count as dependent care benefits for tax purposes. First, amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work. Second, the fair market value of care in a daycare facility provided or sponsored by your employer. Third, pre-tax contributions you made under a dependent care flexible spending arrangement. Your salary may have been reduced to pay for these benefits, but they still qualify. If you received benefits as an employee, they are reported on your Form W-2. Benefits you received as a partner should be shown on your Schedule K-1. You enter the total amount of these benefits on Form 2441, Part III. Even if you cannot claim the credit for child and dependent care expenses, you may still be able to take an exclusion or deduction for the dependent care benefits you received.
Dependent care benefits in- clude: 1. Amounts your employer paid directly to either you or your care provider for the care of your qualifying per- son while you work, 2. The fair market value of care in a daycare facility pro- vided or sponsored by your employer, and 3. Pre-tax contributions you made under a dependent care flexible spending arrangement.
Publication 503 (2017), Child and Dependent Care Expenses (IRS)
Your exclusion is the smallest of five amounts
Your exclusion from income for dependent care benefits cannot exceed the smallest of five amounts. The first is the total amount of dependent care benefits you received during the year. The second is the total amount of qualified expenses you incurred during the year. The third is your earned income. The fourth is your spouse's earned income. The fifth is $5,000, or $2,500 if you are married filing separately. Because the exclusion is the smallest of these five figures, even if you incurred more in qualified expenses or your employer contributed more, the $5,000 ceiling generally caps the tax-free amount. The definition of earned income for this exclusion is the same as the definition used when figuring the credit, except that earned income for the exclusion does not include any dependent care benefits you receive. You can choose to include nontaxable combat pay in earned income when figuring your exclusion, even if you choose not to include it for other credits.
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 (2017), Child and Dependent Care Expenses (IRS)
A spouse with no earned income can wipe out the benefit
The amount of work-related expenses you use to figure your credit cannot be more than your earned income for the year, if you are single at the end of the year. If you are married at the end of the year, the limit is the smaller of your earned income or your spouse's earned income for the year. For this married filing jointly rule, use your spouse's earned income for the entire year, even if you were married for only part of the year. Earned income for the purpose of figuring the credit is defined under the earned income test. This limit ensures that you cannot claim credit for more in care expenses than you or your spouse actually earned during the year. If one spouse has little or no earned income, the credit is limited to the earned income of the working spouse, which could significantly reduce or eliminate the credit.
Earned Income Limit The amount of work-related expenses you use to figure your credit can't be more than: 1. Your earned income for the year, if you are single at the end of the year, orTIP
Publication 503 (2017), Child and Dependent Care Expenses (IRS)
Which child or adult the care has to be for
This test decides whose care your dependent care money may go toward, and an expense for anyone outside it simply does not count, however real the cost. Three descriptions pass. The first is about age: your own dependent child, but only while under age 13, so a child with a birthday in 2017 drops out of the test partway through the year. The other two have nothing to do with age and everything to do with capability - a spouse, or some other person, who could not look after themselves and who shared your home for more than half of 2017. That living-with-you condition is what rules out paying for care of a parent who stays in their own house. The third description asks one further question: the person has to be your dependent, or has to miss being your dependent only because of income of $4,050 or more, a joint return, or the fact that you yourself could be claimed on someone else's return.
Your child and dependent care expenses must be for the care of one or more qualifying persons. A qualifying person is: 1. Your qualifying child who is your dependent and who was under age 13 when the care was provided (but see Child of divorced or separated parents or parents living apart, later), 2. Your spouse who wasn't physically or mentally able to care for himself or herself and lived with you for more than half the year, or 3. A person who wasn't physically or mentally able to care for himself or herself, lived with you for more than half the year, and either: a. Was your dependent, or b. Would have been your dependent except that: i. He or she received gross income of $4,050 or more, ii. He or she filed a joint return, or iii. You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2017 return.
Publication 503 (2017), Child and Dependent Care Expenses (IRS)
Using the FSA shrinks the dependent care credit
If you exclude dependent care benefits from your income, the amount of the excluded benefits has two effects on the dependent care credit. First, the excluded benefits are not included in your work-related expenses. Second, the excluded benefits reduce the dollar limit. This means that using a dependent care flexible spending arrangement to pay for care expenses on a pre-tax basis reduces the amount of expenses you can use to figure the credit. The dollar limit is reduced by the amount of benefits you exclude from income. This prevents you from receiving both a tax-free exclusion and a credit for the same expenses. You must coordinate your FSA contributions with the credit to maximize your overall tax benefit, since the exclusion and the credit work together but are subject to the same dollar cap.
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 2. Reduces the dollar limit, discussed later.
Publication 503 (2017), Child and Dependent Care Expenses (IRS)
The statement your employer must give you, and going over the cap
Your employer must give you a Form W-2 or similar statement showing the total amount of dependent care benefits provided to you during the year under a qualified plan. This total is reported in box 10 of your Form W-2. Your employer will also include any dependent care benefits over $5,000 in your wages shown on your Form W-2 in box 1. This means that if the total dependent care benefits you received exceed $5,000, the excess amount is added to your taxable wages and subject to income tax. The $5,000 cap applies to the total of employer-paid amounts, fair market value of employer-provided daycare, and your own pre-tax FSA contributions combined. If your total benefits are $5,000 or less, none of the benefits appear as additional wages in box 1. If they exceed $5,000, only the amount above $5,000 is included in your box 1 wages.
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 (2017), Child and Dependent Care Expenses (IRS)
The exclusion is claimed on the same form as the credit, in a different part
For the 2017 federal Dependent Care FSA, you claim the exclusion for dependent care benefits by completing Part III of Form 2441. This is the same form used to claim the child and dependent care credit, but the exclusion is reported in a different section. You cannot use Form 1040EZ to claim this exclusion. The exclusion allows you to exclude up to $5,000 of dependent care benefits from your income. If you are self-employed and receive benefits from a qualified dependent care benefit plan, you are treated as both employer and employee, so you would get a deduction rather than an exclusion from wages, but you still must use Form 2441 to claim the benefit. This reporting requirement ensures that the IRS can verify that your exclusion does not exceed the $5,000 limit.
To claim the exclusion, you must complete Part III of Form 2441. You can't use Form 1040EZ.
Publication 503 (2017), Child and Dependent Care Expenses (IRS)
What happens to the part of your benefit above the exclusion limit
For the 2017 federal Dependent Care FSA, if you receive dependent care benefits that exceed the $5,000 exclusion limit, the excess amount becomes taxable income. Your employer reports the total dependent care benefits you received during the year, and any benefits over $5,000 are included in your wages. These excess benefits are subject to federal income tax and employment taxes, just like regular wages. The $5,000 limit applies to the total amount you can exclude from your income, whether the benefits come from employer-provided care, a dependent care flexible spending arrangement, or a combination of both. If your employer provided you with more than $5,000 in dependent care benefits during the year, the amount above the $5,000 cap loses its tax-favored status and must be reported as taxable compensation on your return.
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 (2017), 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 (2017), 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.
- Exclusion limit, married filing separately
Dependent care assistance Exempt3 up to certain limits, $5,000 ($2,500 for married employee filing separate return).