Dependent Care Flexible Spending Accounts
The Dependent Care Flexible Spending Account (DFSA) allows you to set aside money pretax to pay for childcare expenses for dependent children 12 years and under. The DFSA is not a plan to cover your dependents’ healthcare expenses. Use the HFSA for your dependents’ healthcare expenses. The advantage this plan offers is that you pay no federal taxes on your contributions. For example, if you put in $1,000 and are in a 20% federal tax bracket, you might save $200 ($1,000 x 20% = $200). Contributions to the DFSA are subject to New Jersey State income tax. Generally, the IRS requires that both you and your spouse work to qualify to contribute to the DFSA, although there are specific exceptions.