A dependent care FSA is a special account that allows you to set aside pre-tax dollars to pay for dependent care expenses, such as daycare, preschool, or summer camp. The dependent care FSA limit for 2025 is $5,000 for single taxpayers and $10,500 for married couples filing jointly. However, the limit is reduced for highly compensated employees. A highly compensated employee is defined as an employee who earns more than $135,000 in 2025. For highly compensated employees, the dependent care FSA limit is reduced by 50 cents for every dollar of AGI over $135,000.
Dependent care FSAs can be a great way to save money on child care costs. However, it is important to note that there are certain eligibility requirements that must be met in order to participate in a dependent care FSA. For example, you must have a qualifying dependent who is under the age of 13 or who is disabled and incapable of self-care. Additionally, you must be employed or self-employed and have earned income.
If you are considering opening a dependent care FSA, be sure to talk to your employer or a financial advisor to see if you are eligible and to learn more about the benefits of this type of account.
1. Limit
The limit for dependent care FSAs is set by the Internal Revenue Service (IRS) and is adjusted annually for inflation. For 2025, the limit is $5,000 for single filers and $10,500 for married couples filing jointly. However, the limit is reduced for highly compensated employees.
A highly compensated employee is defined as an employee who earns more than $135,000 in 2025. For highly compensated employees, the dependent care FSA limit is reduced by 50 cents for every dollar of AGI over $135,000.
For example, a single highly compensated employee earning $150,000 would have a reduced limit of $8,750 ($10,500 – (($150,000 – $135,000) x $0.50)).
The limit for dependent care FSAs is an important factor to consider when determining how much money to contribute to the account. Highly compensated employees should be aware of the reduced limit and factor it into their financial planning.
2. Highly Compensated Employee
The connection between “Highly Compensated Employee: Earns over $135,000; limit reduced by 50 cents per dollar over $135,000.” and “dependent care fsa limit 2025 highly compensated employee” is that the limit on dependent care FSAs is reduced for highly compensated employees. This means that highly compensated employees who contribute to a dependent care FSA will have less money available to them to pay for dependent care expenses.
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Impact on Highly Compensated Employees
The reduction in the dependent care FSA limit for highly compensated employees can have a significant impact on their ability to pay for dependent care expenses. For example, a highly compensated employee who earns $150,000 would have a reduced limit of $8,750 ($10,500 – (($150,000 – $135,000) x $0.50)). This means that they would have $1,750 less available to them to pay for dependent care expenses than a non-highly compensated employee.
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Planning Considerations
Highly compensated employees who are considering contributing to a dependent care FSA should be aware of the reduced limit and factor it into their financial planning. They should also consider other options for paying for dependent care expenses, such as employer-sponsored dependent care assistance programs or flexible spending accounts.
The reduction in the dependent care FSA limit for highly compensated employees is a complex issue with a number of implications. Highly compensated employees who are considering contributing to a dependent care FSA should carefully consider the impact of the reduced limit on their financial situation.
3. Eligibility
Eligibility for dependent care FSAs is closely tied to the concept of a “qualifying dependent.” To be eligible, you must have a qualifying dependent who meets certain requirements. Qualifying dependents include children under the age of 13, as well as disabled dependents of any age who are incapable of self-care. Additionally, you must have earned income in order to contribute to a dependent care FSA.
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Qualifying Dependents
The definition of a qualifying dependent is key to determining eligibility for a dependent care FSA. Children under the age of 13 are automatically considered qualifying dependents. Disabled dependents of any age who are incapable of self-care may also qualify. To qualify, the disabled dependent must be related to you in one of the following ways:
– Child or stepchild
– Sibling, stepsibling, or half-sibling
– Parent or stepparent
– Grandchild or step-grandchild
– Aunt or uncle
– Niece or nephew
– In-law
– Foster child -
Earned Income
In order to contribute to a dependent care FSA, you must have earned income. Earned income includes wages, salaries, tips, and other taxable income. Self-employment income also counts as earned income. If you do not have earned income, you are not eligible to contribute to a dependent care FSA.
To determine your eligibility for a dependent care FSA and the amount you can contribute, it is important to understand the definition of a qualifying dependent and the earned income requirement.
FAQs about Dependent Care FSA Limit for Highly Compensated Employees in 2025
Here are some frequently asked questions about the dependent care FSA limit for highly compensated employees in 2025:
Question 1: What is the dependent care FSA limit for 2025?
Answer: The dependent care FSA limit for 2025 is $5,000 for single filers and $10,500 for married couples filing jointly. However, the limit is reduced for highly compensated employees.
Question 2: Who is considered a highly compensated employee?
Answer: A highly compensated employee is an employee who earns more than $135,000 in 2025.
Question 3: How is the dependent care FSA limit reduced for highly compensated employees?
Answer: For highly compensated employees, the dependent care FSA limit is reduced by 50 cents for every dollar of AGI over $135,000.
Question 4: What is the impact of the reduced limit on highly compensated employees?
Answer: The reduced limit means that highly compensated employees have less money available to them to pay for dependent care expenses.
Question 5: What should highly compensated employees consider when planning for dependent care expenses?
Answer: Highly compensated employees should be aware of the reduced limit and factor it into their financial planning. They should also consider other options for paying for dependent care expenses, such as employer-sponsored dependent care assistance programs or flexible spending accounts.
Question 6: Are there any other eligibility requirements for dependent care FSAs?
Answer: Yes, to be eligible for a dependent care FSA, you must have a qualifying dependent who is under the age of 13 or who is disabled and incapable of self-care. Additionally, you must have earned income.
Summary: The dependent care FSA limit for 2025 is $5,000 for single filers and $10,500 for married couples filing jointly. However, the limit is reduced for highly compensated employees. Highly compensated employees should be aware of the reduced limit and factor it into their financial planning.
Next Article Section: Dependent Care FSA Contribution Limits for 2026
Tips for Dependent Care FSA Limit for Highly Compensated Employees in 2025
Highly compensated employees who are considering contributing to a dependent care FSA in 2025 should be aware of the reduced limit and factor it into their financial planning. Here are some tips to help highly compensated employees maximize their dependent care FSA benefits:
Tip 1: Understand the Limit
The dependent care FSA limit for 2025 is $5,000 for single filers and $10,500 for married couples filing jointly. However, the limit is reduced for highly compensated employees by 50 cents for every dollar of AGI over $135,000. For example, a highly compensated employee who earns $150,000 would have a reduced limit of $8,750 ($10,500 – (($150,000 – $135,000) x $0.50)).
Tip 2: Consider Other Options
Highly compensated employees who have a reduced dependent care FSA limit should consider other options for paying for dependent care expenses. These options include employer-sponsored dependent care assistance programs and flexible spending accounts.
Tip 3: Plan Ahead
Highly compensated employees should plan ahead and estimate their dependent care expenses for the year. This will help them determine how much they can afford to contribute to a dependent care FSA.
Tip 4: Contribute Regularly
Dependent care FSA contributions are made on a pre-tax basis, which can save you money on taxes. However, you must contribute regularly throughout the year in order to maximize your savings.
Tip 5: Use It or Lose It
Dependent care FSA funds must be used by the end of the plan year. Any unused funds will be forfeited.
Summary: Dependent care FSAs can be a valuable benefit for highly compensated employees, but it is important to be aware of the reduced limit. By following these tips, highly compensated employees can maximize their dependent care FSA benefits and save money on child care costs.
Next Article Section: Dependent Care FSA Contribution Limits for 2026
Dependent Care FSA Considerations for Highly Compensated Employees
The dependent care FSA limit for 2025 is $5,000 for single filers and $10,500 for married couples filing jointly. However, the limit is reduced for highly compensated employees, who earn more than $135,000 in 2025. For highly compensated employees, the dependent care FSA limit is reduced by 50 cents for every dollar of AGI over $135,000.
Highly compensated employees should be aware of the reduced limit and factor it into their financial planning. They should also consider other options for paying for dependent care expenses, such as employer-sponsored dependent care assistance programs or flexible spending accounts.
Dependent care FSAs can be a valuable benefit for highly compensated employees, but it is important to be aware of the reduced limit. By understanding the limit and considering other options, highly compensated employees can maximize their dependent care FSA benefits and save money on child care costs.
