2021 Dependent Care FSA Limit
For 2021, the Dependent Care FSA Limit figures are $10,500 (Exclusion limit) and $5,250 (Exclusion limit, married filing separately).
Effective 2021-01-01Source: Publication 503 (2021), Child and Dependent Care Expenses (IRS)Verified 2026-09-03
Compared with 2020
| Item | 2020 | 2021 | Change |
|---|---|---|---|
| Exclusion limit | $5,000 | $10,500 | +$5,500 (+110.0%) |
| Exclusion limit, married filing separately | $2,500 | $5,250 | +$2,750 (+110.0%) |
Who it applies to
Employees who participate in a dependent care assistance program or dependent care flexible spending arrangement offered by their employer
What changed this year, and why
The American Rescue Plan Act temporarily raised the maximum amount that can be excluded from an employee's income through a dependent care assistance program, including a dependent care FSA, to $10,500 for 2021, up from $5,000 in the prior year. The increase applied for the 2021 tax year only. Employers had the option to amend their plans to allow the higher exclusion; employees needed to check with their employer to confirm the limit available under their plan.
Common questions
- Did all employers automatically raise the limit to $10,500?
- No. Employers could choose whether to amend their plans to adopt the higher limit. Employees should check with their employer to confirm the limit available under their plan.
- What is the limit for married employees filing separate returns?
- A lower limit applied for married employees filing separate returns.
What counts as a dependent care benefit
The IRS identifies three kinds of employer-provided dependent care assistance. First, amounts the employer pays directly to you or to your care provider for the care of your qualifying person while you work. Second, the fair market value of care in a daycare facility that your employer provides or sponsors. Third, pre-tax contributions you make through a dependent care flexible spending arrangement. Even when your salary is reduced to fund these benefits, they still count as dependent care benefits. If your employer's plan is a qualified dependent care benefit plan, you may be able to exclude these amounts from your income, or deduct them if you are self-employed. The total exclusion or deduction for the year is capped at the smallest of five amounts: the benefits received, qualified expenses incurred, your earned income, your spouse's earned income, or the plan maximum. For 2021, the American Rescue Plan raised that plan maximum to $10,500. Any benefits above that limit are reported as taxable wages.
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 (2021), Child and Dependent Care Expenses (IRS)
Your exclusion is the smallest of five amounts
For 2021, the IRS limits the amount you can exclude from income or deduct for dependent care benefits to the smallest of five amounts. First, the total dependent care benefits you received during the year. Second, the total qualified expenses you incurred during the year. Third, your earned income for the year. Fourth, your spouse's earned income for the year. Fifth, the maximum amount allowed under your dependent care plan. For 2021, the American Rescue Plan increased this plan maximum to $10,500. This means if your employer's plan allows more than $10,500 in benefits, you can only exclude or deduct up to $10,500. If both you and your spouse have earned income, the limit is still the smallest of all five amounts. The definition of earned income for this exclusion or deduction is the same as for the credit, except it doesn't include any dependent care benefits you receive.
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. The maximum amount allowed under your dependent care plan. For 2021, the ARP increased the maximum amount that can be excluded from an employee's in- come through a dependent care assistance program to $10,500
Publication 503 (2021), Child and Dependent Care Expenses (IRS)
A spouse with no earned income can wipe out the benefit
For the dependent care credit, the work-related expenses you can count are limited by an earned income cap. If you are single at the end of the year, you cannot use more work-related expenses than your own earned income. 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. If your spouse had no earned income during the year, this limit becomes zero, which eliminates any credit. This rule exists because the credit is meant to offset care costs that allow you to work. When a married couple is filing, both spouses must have earned income for the full benefit; the IRS uses the lower earner's income as the cap. For married taxpayers, the spouse's earned income is measured for the entire year even if the marriage lasted only part of the year. Exceptions exist for a student-spouse or a spouse who is physically or mentally unable to care for himself or herself, which may allow a deemed amount of earned income. Legally separated taxpayers use only their own income.
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, or 2. The smaller of your or your spouse's earned income for the year if you are married at the end of the year.
Publication 503 (2021), Child and Dependent Care Expenses (IRS)
Which child or adult the care has to be for
Whether an expense counts turns on who was cared for, not on what the care cost, and only three descriptions of a person pass. One is a child of yours claimed as a dependent, and only up to age 13; qualifying status is judged day by day, so a child who turns 13 in the middle of 2021 counts for the part of the year before that birthday and not after it. The other two are about incapacity rather than age: a spouse, or any other person, who cannot manage their own basic care and who lived in your home for more than half of 2021. Sharing your home is not optional in those two cases, which is why care bought for a relative who lives elsewhere does not count. For the third group there is also a dependency question to clear - the person is your dependent, or would be but for income of $4,300 or more, a joint return filed with a spouse, or your own place on someone else's 2021 return.
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 $4,300 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 2021 return.
Publication 503 (2021), Child and Dependent Care Expenses (IRS)
Using the FSA shrinks the dependent care credit
If you exclude dependent care benefits from your income, those excluded amounts cannot be counted as work-related expenses when figuring the child and dependent care credit. Additionally, the excluded benefits reduce the dollar limit otherwise available for the credit. This means you must choose between the tax-free exclusion and the credit - you cannot claim both on the same expenses. The excluded benefits effectively shrink the pool of expenses available to calculate the credit, which may result in a smaller credit than you would otherwise receive.
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 (2021), 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. If any of those benefits exceed the maximum amount allowed to be excluded for 2021, your employer will include the excess in your taxable wages. The American Rescue Plan increased the maximum exclusion to $10,500 for 2021. You report the total benefits from your employer's statement on Form 2441 to determine whether any portion exceeds the exclusion limit and must be included in your income. The statement your employer provides is essential for correctly completing your tax return and determining the interaction between your exclusion and any dependent care credit you may claim. If your benefits exceed $10,500, the excess is taxable compensation that must be reported as 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 in your wages shown in box 1 of your Form W-2 any dependent care benefits that exceed the maxi- mum amount of dependent care benefits allowed to be ex- cluded for 2021.
Publication 503 (2021), Child and Dependent Care Expenses (IRS)
Care paid for late does not count toward the limit in the year the care happened
For the 2021 tax year, the dependent care exclusion follows a strict timing rule: you can only count expenses that were actually paid during 2021, regardless of when the care services were provided. This means that care expenses from 2020 that you did not pay until 2021 cannot be counted as work-related expenses for 2021, even though the care occurred in the previous year. The IRS treats these delayed payments separately on your 2021 return. Conversely, if you incurred care expenses in 2021 but did not pay for them until 2022, those expenses cannot be counted toward your 2021 exclusion limit of $10,500. This pay-when-paid rule applies to all dependent care benefits, including those received through a dependent care flexible spending account. The exclusion limit is an annual cap, and the timing of when you actually pay for care services determines which year's limit applies.
Expenses not paid until the following year. Don't count 2020 expenses that you paid in 2021 as work-rela- ted expenses for 2021.
Publication 503 (2021), Child and Dependent Care Expenses (IRS)
The exclusion is claimed on the same form as the credit, in a different part
If your employer provides dependent care benefits under a qualified plan, you may be able to exclude those benefits from your income, up to the $10,500 exclusion limit for 2021. To claim this exclusion, you must complete 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 Part III, which is separate from the parts used for the credit. The exclusion applies when your employer maintains a qualified dependent care assistance program and provides benefits such as contributions to a dependent care flexible spending account. Your employer can tell you whether your benefit plan qualifies. If you are self-employed and receive benefits from a qualified plan, you would instead claim a deduction on Schedule C, Schedule E, or Schedule F rather than an exclusion from wages, but you still use Form 2441 to compute the amount.
To claim the exclusion, you must complete Part III of Form 2441.
Publication 503 (2021), 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 503 (2021), Child and Dependent Care Expenses (IRS)
- Exclusion limit
For 2021, the max- imum amount is increased to $10,500 (previously $5,000).
- Exclusion limit, married filing separately
For married employees filing separate returns, the maxi- mum amount is increased to $5,250 (previously $2,500).