Manage your dependent care FSA (DCFSA)

Eligibility depends on the type of employment and role.

Who’s eligible

Any employee who can enroll in the company’s health benefits can also enroll in the DCFSA. This means:

• All full-time employees are eligible.

• If your company offers medical insurance to part-time employees, they’re eligible.

Who’s ineligible

The IRS does not allow some people to contribute to a DCFSA:

• Variable employees

• Seasonal employees

• Contractors

• Owners taking owner’s draws

• 2%+ shareholders of an S corporation

Employees can spend DCFSA funds on care for qualified dependents, which allows them (and their spouse, if applicable) to work or look for work.

See IRS Publication 503 for a full list of eligible expenses and what makes a dependent qualified.

Eligible expenses

• After-school care, preschool, daycare, day camps, or babysitters for children under 13 during working hours

• Care for an adult dependent who meets the criteria of a qualified dependent

Ineligible expenses

• A babysitter while the parent goes to dinner

• Overnight camps

• Tuition for schooling (kindergarten and above)

• Lodging, meal fees, late fees, house cleaning services, or anything not directly related to care

Qualified dependents

Here are two examples of qualified dependents:

• A child under the age of 13 who is the employee’s taxable dependent

  • The child must live with the employee for more than half the year and meet other requirements.

  • If the employee is divorced, the IRS considers the child a qualified dependent of the “custodial parent.”

• A spouse or tax dependent who is physically or mentally incapable of self-care

Go to the “Who Is A Qualifying Person?” section of IRS Publication 503 for more info.

FAQs

Q: Can I pay a relative for care with my DCFSA?

A: You can pay relatives who are not your dependents, even if they live in your home. However, you cannot pay:

• A person you (or your spouse if filing jointly) claim as a dependent

• Your child who was under age 19 at the end of the year, even if they’re not your dependent

• A person who was your spouse at any time during the year

• The parent of your qualifying child if the child is under age 13

Q: Can my spouse call Gusto and manage the DCFSA account?

A: No. For account security, only the primary account holder can contact Gusto for support on pre-tax benefits questions.

Q: Does my babysitter need to be licensed?

A: No. However, you cannot use DCFSA funds to pay a tax-dependent or someone under 18 for babysitting. The babysitting must be work-related.

Eligible employees choose their contribution amount during open enrollment. This contribution is also called an election.

Pre-tax calendar year limits

Filing status

2025

2026

Married and filing jointly (the employee and their spouse cannot together exceed this limit)

$5,000

$7,500

Single parent

$5,000

$7,500

Married and filing separately

$2,500

$3,750

View year-to-date contributions

If you want to know how much you’ve contributed to your DCFSA, check your paystub or the Benefits page of your Gusto account.

Change contributions

The annual amount you choose to contribute during your enrollment is locked in for the company’s policy year. We divide your total election amount by the number of regular payrolls your company will run during the policy year and deduct it evenly from your paychecks. You cannot change DCFSA elections unless you experience a qualifying life event.

If you experience a qualifying life event and think you’re eligible to change your DCFSA contribution, reach out to [email protected]. Include the qualifying life event you experienced, documentation of the event, and the new contribution amount you’d like.

Remember that if you want to lower your contribution amount, you can only lower it up to the amount you’ve already used or contributed, whichever is larger.

DCFSA funds become available to use after each payroll deduction. This is different from other benefit accounts that may offer funds upfront.

Fund availability

DCFSAs are post-funded. This means you can only use funds once we deduct them from your paycheck and deposit them into your account on the check date.

Payroll deductions

We deduct employee contributions pre-tax from each paycheck. You can use your funds on the check date.

If a deduction is missed, we redistribute the remaining amount owed over the remaining payrolls in the policy year.

Company bank account debits

Learn about funding requirements, associated bank debits, and how to reconcile those debits.

When an employee sets aside pre-tax money for a DCFSA, this lowers their gross taxable income. Since the IRS taxes employers for FICA (Federal Income Contribution Act) on the amount an employee earns, this also reduces employer taxes.

Here are the company fees to offer a DCFSA with Gusto:

• Annual base fee: $200

  • The base fee only applies once per year, even if you also offer a health flexible spending account (FSA), Health Savings Account (HSA), or commuter benefits through Gusto. Whether you offer just a DCFSA or all benefit account types, the total base fee is $200.

• Per enrolling employee:

  • $4 per enrolling employee per month, with a $20 minimum

  • Exception: For employees who also enroll in an FSA through Gusto, there’s no additional cost. Example: The monthly company cost for someone who enrolls in a DCFSA is $4. The cost for someone who enrolls in both a DCFSA and an FSA is still $4.

An enrolling employee is someone with an active benefit in that month or who is in a runout period.

To set up a DCFSA through Gusto, your company needs to also have Gusto-brokered medical insurance or use the broker integration. If you already have benefits with Gusto, you can only add a DCFSA during your next renewal.

To set up medical coverage and a DCFSA, check out this article.

If you offer a DCFSA through a third party, you can set up pre-tax payroll deductions for enrolled employees.

You must offer medical benefits through Gusto or use the broker integration to offer a Gusto DCFSA.

Before transferring your company’s existing DCFSA to Gusto, you’ll need a list of currently enrolled employees, their balances, and year-to-date contributions. Reach out to your current DCFSA administrator if you need help finding this information.

To transfer your company’s existing DCFSA to Gusto:

1. Sign in to Gusto.

2. Go to Benefits.

3. Scroll to All Benefits.

4. Next to Flexible Spending Account - Dependent Care, click Set up.

5. Choose Yes, we currently offer a Dependent Care FSA to our employees.

6. Choose Continue.

7. Click Save.

Once you complete the steps in Gusto, we’ll start setting up your benefit and contact you with the next steps.

Non-discrimination testing helps make sure your benefits are fair and do not favor highly paid or key employees. For flexible spending accounts (FSAs), a common test is the key employee concentration test. For DCFSAs, both the key employee concentration test and the average benefits test are commonly used. You should talk to a tax expert or legal counsel to find out which tests your company needs to do.

Non-discrimination testing timeline

It’s a good idea to run non-discrimination tests three times each policy year to avoid problems with the IRS:

1. Right after open enrollment. This helps you determine if you’re likely to pass before the benefit policy year begins.

2. 2–3 months before your plan renews. This shows if you’re still on track to pass at the end of the policy year.

3. End of the policy year. This confirms if you passed for that year.

What to do if you have concerns about failing non-discrimination testing

If you’re worried about failing these tests throughout the policy year, talk to your tax expert or legal counsel to decide what to do. Then contact our team so we can help you adjust your benefits. To contact us, sign in to your Gusto account and click the help icon in the top-right corner of the page.

We might suggest these options:

1. Highly paid or key employees can lower their contribution to their accounts or stop contributing altogether.

2. More regular employees can join the plan, so things are more balanced.

If your company fails the test at the end of the policy year, you may need to change some or all contributions to be post-tax. This means employees pay taxes on their benefits, and the company also pays payroll taxes.

Key employee concentration testing

The key employee concentration test checks that key employees make up no more than 25% of the total benefits used by all employees. Total benefits include pre-tax medical, dental, and vision premiums for both employees and dependents. If no key employees join the DCFSA, your company automatically passes the test.

If key employees use more than 25% of the total annual benefits, your company will likely fail the test at the end of the policy year.

How to identify key employees per the IRS

The IRS says a key employee:

• Is an officer who makes more than $175,000, OR

• Is an employee or officer who, for the length of the policy year, is either of the following:

  • A 5% or greater owner of the business, OR

  • A 1%-4.99% owner of the business whose annual pay is more than $150,000

Average benefits testing

The average benefits test is used in different cases, but for Gusto customers, it’s especially important for DCFSAs. It checks that regular employees put in at least 55% as much as highly paid employees in the DCFSA.

It’s hard to know if you’ll pass this test until open enrollment ends, since it depends on who joins the DCFSA. New employees joining or others leaving can also change your results during the year.

How to identify highly paid employees per the IRS

The IRS says a highly paid employee is someone who:

• Owns more than 5% of the outstanding stock or total voting power of a corporation or 5% of capital profits interest if not a corporation at any time during the policy year, OR

• Made more than $120,000 last year OR

• Was among the top 20% of earners last year

If most of your team owns part of the company or earns more than $120k, the DCFSA may not be a good fit.

Exceptions to those considered highly paid by the IRS:

• Have worked for less than 6 months, OR

• Usually work less than 17.5 hours per week, OR

• Usually work 6 or fewer months in a year, OR

• Are under 21 years of age

Here’s some more information on the specific IRS regulations pertaining to non-discrimination testing:

• Internal Revenue Code (IRC) Section 125

  • 26 U.S. Code § 125. Cafeteria plans

• Internal Revenue Code (IRC) Section 105

  • 26 U.S. Code § 105. Amounts received under accident and health plans

• Internal Revenue Code (IRC) Section 129

  • 26 U.S. Code § 129. Dependent care assistance programs

Learn when you can enroll in a DCFSA and how to go about actually enrolling in one.

When you can enroll in a DCFSA

If your employer offers a DCFSA and you’re eligible, you can enroll through Gusto:

• As a new hire

• During open enrollment

• If you’ve experienced a qualifying life event

Enroll in a DCFSA

To enroll in or waive enrolling in a DCFSA:

1. Sign in to Gusto.

2. On your Home page, click the sticky note that says Choose your benefits.

   • If you do not see this, you may not be eligible to enroll in a DCFSA. If you’ve experienced a qualifying life event, check out this article to change your benefits outside open enrollment.

3. Click Get Started to begin the enrollment process.

4. Part 1: Who’s covered

   • Dependents will be added as claimants in the Benefits Card Hub, where you’ll manage your DCFSA. Remember that while you can add any dependent in this step, you can only use DCFSA funds on eligible dependents.

5. Part 2: Choose Benefits. Next to Dependent Care FSA, select Enroll or waive.

   • To enroll in the DCFSA, choose Enroll. To opt out, choose Waive.

   • If enrolling, answer all applicable questions to determine your maximum contribution.

     • If you have another DCFSA outside of Gusto, do not exceed the IRS annual limit.

   • Enter your contribution amount. If the plan year spans two calendar years (such as a plan that begins December 1, 2024 and ends November 30, 2025):

     • Choose an election amount for each calendar year, up to that year’s limit.

     • If you choose the maximum for the second plan year and renew the DCFSA the following plan year, you cannot contribute to or use the DCFSA until the second part of the renewal plan year.

   • Note: Unlike other benefits, there’s no step to enroll dependents. Instead, add dependents as claimants in “Part 1: Who’s covered.” We add any dependents from that step to your Benefits Card Hub as a claimant. Once you enroll, you can add or remove dependents anytime in the Benefits Card Hub.

6. Part 3: Extra Information

   • Answer any questions here and select Save & Continue.

7. Part 4: Sign forms

   • If applicable, e-sign any forms here. Then click Confirm selections.

Your Gusto Benefits Card will arrive at your mailing address in a plain white envelope before the benefit begins.

After the benefit’s effective date, you can find your plan details on the Benefits page of your Gusto account. There, you’ll also find your plan document, which explains DCFSA rules and how to use your benefits. Payroll deductions will begin on the first payroll of the DCFSA’s plan year.

Learn how to access and use your Benefits Card Hub.

Learn about managing your Gusto benefits card, including activating it, ordering a card for yourself or a dependent, and more.

You can review and manage your expenses in the Benefits Card Hub: Under My Accounts, click DCFSA.

Learn how to register or sign in to the Benefits Card Hub in the Access your Benefits Card Hub section of the article.

Add or edit a DCFSA reimbursement method

You can receive reimbursements by check, direct deposit, Venmo, or PayPal.

To add or change your reimbursement method:

1. Access the Benefits Card Hub.

2. In the top-right corner, click on your initials.

3. Click Manage Account.

4. Click the Reimbursement Options tab.

5. Choose Add Payment Method.

6. Fill out the prompts, and you’re ready to start getting reimbursed.

DCFSA receipt requirements

Make sure your receipt includes:

• Dependent name

• Name of the service provider

• Address of the service provider

• Social Security number or tax ID of the service provider

• Service date

  • Note: Your receipt must include the phrase “service date” or “service dates.” If your receipt does not include the service date, complete this form and upload it with your claim for review. A payment date, invoice date, or report date is not enough.

• Description of services received

• Cost of service

Submit a DCFSA expense for reimbursement

If you paid out of pocket for an eligible expense, you may submit it for reimbursement as long as the service occurred during your coverage period, and the final date to submit claims has not passed.

To submit an expense for reimbursement:

1. Access the Benefits Card Hub.

2. Choose Reimburse Me.

3. Upload your receipt, bill, or explanation of benefits (EOB).

4. Review the information on the next page. If everything looks correct, submit the request. If anything needs to be corrected, you can edit the field directly.

5. Choose your reimbursement method and submit the request.

If we can validate the information right away, we’ll approve your claim on the spot. If we need more review time, you’ll get an email when we process the claim. This typically takes 3-5 business days.

Get reimbursed

If we approve your claim, we’ll reimburse you using the reimbursement method you’ve chosen:

• Check: We’ll mail a check to your home address in a plain envelope. If you have not cashed the check, you can still update your reimbursement method to direct deposit, Venmo, or PayPal in the Benefits Card Hub.

• Direct deposit: Your chosen bank account will get the ACH within 1–3 days. It will appear on your bank statement as “Gusto PayClaim.”

• Venmo/PayPal: We’ll send payment instantly from Elevate to your Venmo or PayPal account. You’ll pay a fee of $1 per transaction for this service.

Submit an expense for reimbursement after leaving your company

If your benefit has a runout period, you may have extra time to submit claims for qualifying expenses you had during your employment. You can confirm your last day to submit an expense in the Benefits Card Hub.

If you did not register for your Benefits Card Hub during your employment, we can help. To contact us, sign in to your Gusto account and click the help icon in the top-right corner of the page.

Pay a DCFSA bill directly

If you receive a bill for an eligible expense, you can pay it via check directly from your associated pre-tax benefit account.

If you’ve already paid the bill and want to be reimbursed, go to the header above titled "Submit a DCFSA expense for reimbursement."

To pay a bill directly:

1. Access the Benefits Card Hub.

2. Choose Pay a bill.

3. Upload your receipt.

4. Review the information on the next page. If all looks correct, submit the request.

If we can identify all the required information in the receipt, we’ll automatically approve your claim and pay the provider by check. If not, we’ll manually review the claim within 3-5 business days. You’ll get an email once we’ve reviewed and processed the claim.

The IRS requires that we validate the eligibility of each DCFSA expense. We’ll email you if an expense requires more information to complete this validation. You’ll also see it as a notification on your Benefits Card Hub homepage.

To resolve an expense requiring action:

1. Access the Benefits Card Hub.

2. Click Expense Details.

3. Filter for the status Needs help.

4. Click the expense that needs help.

5. You’ll see a note that provides more detail on what we need. If we need more documentation, you can upload it directly.

We’ll review your documentation and email you with an update within 3–5 business days.

Here’s what your documentation should include:

• Dependent name

• Name of the service provider

• Address of the service provider

• Social Security number or tax ID of the service provider

• Service date

  • Note: Your documentation must include the phrase “service date” or “service dates.” If your documentation does not include the service date, complete this form and upload it with your claim for review. A payment date, invoice date, or report date is not enough.

• Description of services received

• Cost of service

We’ll email you if you used your Gusto Benefits Card on an ineligible expense. Resolve this expense before the account expires to follow IRS standards.

You can resolve an ineligible expense in two ways: offset the balance with an eligible expense or pay it back with a check.

Option 1: Offset the balance with an eligible expense

1. Pay for an eligible expense out of pocket and save the receipt.

2. Submit the expense for reimbursement in the Benefits Card Hub.

3. We’ll review the claim within 3-5 business days and apply it to the ineligible expense.

   • If the eligible expense you submit is more than the balance you owe, we’ll reimburse you for the remainder. For example, if you owe $10 for an ineligible expense and submit an eligible $15 expense to offset it, your balance will be $0, and we’ll reimburse you $5 from your account.

Option 2: Pay the expense back via check

Mail a check for the amount of the transaction to:

1. Elevate HCS

2. PO Box 875050

3. Kansas City, MO 64187-5050

You can submit a DCFSA expense for reimbursement that exceeds your available balance. If we approve it, we’ll reimburse you up to the amount in your account. Then, we’ll reimburse you for the remaining balance over time until you reach your annual DCFSA contribution.

Click here to learn about funding requirements, associated bank debits, how to reconcile those debits, and the reason behind “Replen (replenish) invoice” emails.

If you’re no longer interested in offering a DCFSA, you can either cancel the plan at your next benefits renewal or cancel the benefit mid-year.

The contribution amount you choose during your enrollment is locked in for the remainder of the company’s policy year. You can only change your DCFSA if you experience a valid qualifying life event, like a change in daycare needs.

Check out the chart below for life events that qualify you to make changes, and learn about the steps needed to change your DCFSA in Gusto.

Here are the contribution changes you can make:

• If you want to decrease your contribution, you can only lower it to the amount that you’ve already contributed.

• If you want to increase your contribution, you can only contribute up to the IRS maximum.

• When you make your change in Gusto, enter the new total contribution you want to have made by the end of the plan year.

Life events that qualify you to change your DCFSA

Event

Changes you can make

Change in daycare needs

• Enroll in a DCFSA.

• Increase your DCFSA contribution.

Relocation (only if it leads to a change in the cost of dependent care)

• If the cost of coverage increases: You can increase your DCFSA contribution.

• If the cost of coverage decreases: You can decrease your DCFSA contribution.

Court order

• Enroll in a DCFSA.

• Increase your DCFSA contribution.

Birth or adoption

• Enroll in a DCFSA.

• Increase your DCFSA contribution.

Marriage, domestic partnership, or civil union

• Enroll in a DCFSA.

• Increase your DCFSA contribution.

• If you’re enrolling in your partner’s DCFSA, you can cancel your Gusto DCFSA or decrease your contribution.

Divorce or legal separation

• Enroll in a DCFSA.

• Add affected dependents to coverage.

• Remove the partner and their dependents from your DCFSA or decrease your contribution.

You enroll in a different DCFSA

• Decrease DCFSA contribution.

Your dependent enrolls in a different DCFSA

• Remove the dependent from your DCFSA.

• Decrease your contribution.

You or a dependent gains eligibility for a DCFSA

• Enroll in a DCFSA.

• Increase your contribution.

You aged out of a parent’s plan

• Enroll in a DCFSA.

• Increase your contribution.

Death of a dependent

• Decrease your contribution.

Dependent lost other coverage

• Enroll the dependent in coverage.

• Change plans to support added dependent(s)

Moved in or out of plan area

• Cancel coverage if you or a dependent has moved out of the service area and become ineligible for coverage due to the move.

• Add or change coverage if you or your dependent has become eligible for coverage due to a move.

International relocation

• Cancel coverage if you or a dependent has moved to another country.

• Add or change coverage if you or your dependent has moved to the US from another country.

Death of a dependent

• Cancel coverage for the dependent.

No tax forms are required for DCFSA benefits.

If your plan year has ended or your company has canceled the DCFSA, you may still have access to your DCFSA funds during the runout period, grace period, or rollover.

If your company is switching from Gusto or using a new broker, ask your employer if your DCFSA will be moving too. In these cases, you cannot submit expenses for reimbursement after the plan ends.

How long you have to submit claims (runout period)

At the end of your company’s plan year, you have 90 days to submit claims for services that occurred during that plan year. This is called the runout period.

Your reimbursement request(s) must be for services you received while you were covered. If you have two different DCFSA accounts, you’ll need to submit separate requests for each one.

Extra time to spend DCFSA funds (grace period)

In addition to the runout period, your plan may also have a grace period. A grace period gives you extra time to use DCFSA funds on new expenses after the plan year ends. The grace period usually lasts 2 months and 15 days. Check the DCFSA tile on the Benefits page of your Gusto account to see if your plan has a grace period and when your last day to submit claims is.

What happens to unused DCFSA funds

After the runout and grace periods end, any unused funds in your DCFSA account are returned to your employer. Since DCFSAs are linked to the company’s bank account, the funds remain there.

Your DCFSA ends on your last day of work. Funds are “use it or lose it,” so any funds after the runout period are lost.

Runout period

You have 90 days after your last day of employment to submit reimbursement requests for services you received during the plan year. This is called a runout period. Find your last day to submit a request in the Dependent Care FSA section of your Benefits Card Hub.

Leftover funds

Your employer receives any funds remaining in your account 90 days after your last day of employment.The money stays in your company’s bank account because that account funds your DCFSA..