A Dependent Care Flexible Spending Account (DCFSA) is a type of tax-advantaged savings account where you can set aside pre-tax dollars to pay for qualifying dependent care expenses. These are expenses that allow the employee to be employed or look for work.
DCFSAs are regulated by IRS Publication 503. They are not subject to Section 125 (ERISA) requirements.
A DCFSA is post-funded, meaning that funds are only available to an employee once deductions are made through payroll. Pre-tax deductions are taken from the employee’s payroll throughout the year and those deductions are available to spend that same day.
If your Dependent Care FSA is managed by Gusto (including the broker integration), visit your Gusto Benefits Card Manager portal to see your balance and submit claims.
Choose a dropdown below to learn about how a DCFSA works.
Any employee who's eligible to participate in health benefits with your company is eligible to participate in the Dependent Care FSA. This means:
Per the IRS, some individuals are not eligible to contribute to a DCFSA:
Dependent Care FSA funds can be used on care for qualified dependents that allows an employee (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.
Here are a couple examples of qualified dependents:
Check out the "Who Is A Qualifying Person?" section of IRS Publication 503 for more info.
Q: Can I pay a relative for care with my DCFSA?
A: You can count work-related payments you make to relatives who are not your dependents, even if they live in your home. However, do not count any amounts you pay to:
Q: Does my babysitter need to be licensed?
A: You do not need to use a licensed babysitter. However, you cannot be reimbursed for the babysitting services of a tax-dependent or someone who is not 18 or older and the babysitting must be work-related.
Eligible employees choose how much they want to contribute during open enrollment. Their contribution is also known as their election.
| Filing status | 2022 | 2023 |
| Married and filing jointly (the employee and their spouse cannot together exceed this limit) | $5,000 | $5,000 |
| Single parent | $5,000 | $5,000 |
| Married and filing separately | $2,500 | $2,500 |
DCFSAs are post-funded, meaning that you can only use funds once they've been deducted from payroll and deposited into your account on the check date.
Employee contributions are deducted pre-tax from payroll. For paychecks with DCFSA deductions, your funds are available to use on the check date.
If a deduction is missed, the remaining amount owed is redistributed over the remaining payrolls in the policy year.
Employee deductions and company contributions remain in the company bank account until employees use their funds. Money only leaves the company bank account when an employee swipes their card or submits a claim.
Each day, the sum of all employees' disbursements are debited from the company in one lump sum. These are debited as "MBI" or "Med-I-Bank."
On the first of each month, benefits admins receive an employer disbursement report via email. This report lists all the previous month's individual transactions and claims, and you can use it to reconcile the debits.
Here's what benefits admins need to know to set up DCFSA for your company.
Here are the company fees to offer a DCFSA with Gusto:
An enrolling employee is someone with an active benefit in that month or someone in a runout period.
To offer a DCFSA through Gusto, your company must have Gusto-brokered medical insurance or use the broker integration.
To set up medical coverage and a DCFSA, check out this article.
If you already have benefits with Gusto, you can add a DCFSA during your next renewal.
If you offer a DCFSA through a third party, you can set up pre-tax payroll deductions for enrolled employees.
Follow these steps if your company offers a DCFSA you'd like to transfer to Gusto. You must offer medical benefits through Gusto or use the broker integration to offer a Gusto DCFSA.
Before you begin, you'll need a list of currently enrolled employees, their balances, and year-to-date contributions. Reach out to your current DCFSA provider if you need help finding this.
Once you complete the steps in Gusto, we'll start setting up your benefit and reach out to you with next steps.
Non-discrimination testing is a method you can use to make sure your benefits don’t favor highly compensated or key employees. For Flexible Spending Accounts (FSAs), a common test to use is the key employee concentration test. For Dependent Care Flexible Spending Accounts (DCFSA), both the key employee concentration test and the average benefits test are commonly used. You are encouraged to check with your tax expert and/or legal counsel to confirm which tests are necessary for your company.
We suggest that you run non-discrimination tests three times during your policy year to avoid any issues with the IRS:
If you have concerns about failing these tests throughout the policy year, you should check with your tax expert and/or legal counsel to determine which of the options below is best for you and then reach out to our team so we can help make changes to your benefits. Here’s what we may recommend:
The key employee concentration test requires that, of your employees’ total annual benefit amount, 25% or less of this amount comes from your key employees’ benefit totals. The total annual benefit amount includes pre-tax premiums of all lines of coverage, such as medical, dental, and vision, for both employees and dependents. If none of your company’s key employees opt in to the Health FSA, your company passes this test automatically.
If key employees account for greater than 25% of the total annual benefit amount, you are likely to fail the key employee concentration test at the end of your policy year
A key employee, is defined by the IRS as:
The average benefits test applies in a variety of situations, but for Gusto customers it’s especially important for DCFSAs. This test requires that the average election amount for the DCFSA of non-highly compensated employees be at least 55% of the average contribution amount for the DCFSA of highly compensated employees.
It can be difficult to predict whether your company may pass or fail this test until open enrollment is over, as it is based solely on your employees’ choice to opt into (or out of) the Dependent Care FSA. It can also be difficult to predict throughout the duration of your policy year, as any new hires opting in (or terminated employees losing this benefit), can also affect your pass/fail result at the end of your policy year.
A highly compensated employee, as defined by the IRS, is identified as an employee:
If everyone at your company owns more than 5% of the company and/or the majority of the team earns more than $120k, the DCFSA may not be the best benefit for your company.
Employees who satisfy the following criteria do not count toward the top-paid group:
Note: This article is for general and educational reference only and is accurate as of April 1, 2019. Since IRS laws are complex and change frequently, we'd recommend working with a tax professional to perform non-discrimination testing.
Here is some additional information on the specific IRS regulations pertaining to non-discrimination testing:
You can enroll in your company's DCFSA as a new hire, during your company's annual open enrollment, or if you experience a qualifying life event.
If you're a new hire or your company is in open enrollment, we email all eligible employees when it’s time to enroll in or waive DCFSA benefits.
Follow the steps below to enroll as a new hire or during open enrollment:
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 in the Benefits section 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.
You can submit and manage claims in your Gusto Benefits Card Manager.
Dependent Care FSA funds can be used on care for qualified dependents that allows an employee (and their spouse, if applicable) to work or look for work.
There are two ways you can use your funds on eligible expenses:
Once you receive your card in the mail, you can add it to your mobile wallet. Choose your phone provider for instructions:
If you use your card for the first time by swiping it or using mobile pay in person, the card is automatically activated. If your first use of the card is an online transaction, follow the steps below to activate it first.
If you need help adding your card to your mobile wallet, contact your mobile wallet provider.
Swiping your card at a physical location will automatically activate it.
If your first use of the card is an online transaction, follow these steps to activate it first:
If your company offers multiple benefits savings accounts through Gusto and you enroll in more than one, you will use the same Gusto Benefits Card for all transactions. For example, if you enroll in both commuter benefits and an FSA, you'll use the same Gusto Benefits Card for eligible commuting and medical expenses. Eligible claims and transactions are automatically drawn from the correct account.
Your Gusto Benefits Card should be used as a credit card, though some vendors require a PIN. How's how to find it:
If your Gusto Benefits Card has been misplaced or stolen, report it as soon as possible with these steps:
If you don’t have the option to issue another card to yourself, reach out to [email protected] and we'll issue you a new Gusto Benefits Card.
If you find a transaction that you did not complete yourself and you believe to be fraudulent, here's how to dispute it.
Note: If you recognize the transaction but the service provider charged the wrong amount, contact your provider directly to discuss the transaction.
If the dispute is approved, you should see a refund on your account within 55 days.
You may use your card on qualified expenses for yourself and your dependents. An eligible dependent is any family member who is a tax dependent on your tax return.
If needed, follow these steps to add a dependent to your account and issue them their own card:
We'll mail the card in a blank white envelope to your mailing address within 7–10 days.
To register for the Gusto Benefits Card Manager (GBCM) for the first time, follow the steps below.
Once you're registered, you can access your Gusto Benefits Card Manager at this link or from the Benefits tab of your account.
If you've left your company and didn’t register for your Gusto Benefits Card Manager account during your employment, reach out to [email protected] for your sign-in credentials.
You can review transactions, submit claims, and more in the Gusto Benefits Card Manager. If you need to register for the Gusto Benefits Card Manager, follow the steps above.
Submit a claim
To submit a claim, make sure you have a receipt for the service that includes:
Follow these steps to submit your claim.
We’ll let you know once your claim has been approved or denied. To avoid a denied claim, make sure you’re using your card only for eligible expenses.
When you'll be reimbursed
If your claim is approved, we'll email you to ask if you want to be reimbursed with a check or by direct deposit. A check will arrive at your mailing address in 7–10 days. If you choose direct deposit, it will appear in 3–5 business days. It will be sent to the bank account listed under “Reimbursement Details” in your Gusto Benefits Card Manager and it will appear as an MBI or Med-I-Bank credit.
Need to submit claims after leaving your company?
If your benefit has a runout period, you may have extra time to submit claims for qualifying expenses incurred during your employment.
If you didn’t register for your Gusto Benefits Card Manager account during your employment, reach out to [email protected] for your sign-in credentials.
If we need more info from you to process a DCFSA claim, we'll email you. The IRS requires that we validate the eligibility of each DCFSA expense.
This may happen if you use your Gusto Benefits Card at a vendor that does not have an inventory information approval system (IIAS)—a system that contains known IRS-approved expenses.
We'll review your documentation and email you with an update within 3–5 business days.
If this is the second time you're uploading documentation or the transaction has already been deemed ineligible, please notify [email protected] that documentation has been provided.
If you do not upload documentation, we'll send a reminder email one week and three weeks after the first notification. If 35 days pass after the second reminder email with no documentation uploaded, the account will be suspended and a balance due will be created.
Here's what your documentation should include:
If you're unable to provide documentation online, you may fax it to us. Please print the email we sent to you requesting the missing documentation. Fax the email and your documentation to (844) 791-8320.
If you used your Gusto Benefits Card on an ineligible expense, we’ll email you with next steps. Your card may be temporarily suspended until the ineligible expense is resolved.
To resolve an ineligible expense, you can either offset the balance with an eligible expense, or you can pay it back from your bank account.
Option 1: Offset the balance with an eligible expense
Your card is reactivated once the offset is processed and you no longer owe a balance for an ineligible expense.
Option 2: Pay the expense back from your personal bank account
The repayment will be processed within 7 business days. When you submit a repayment, the "Balance Due" is removed from your home page, but the expense is still listed as "ineligible." If approved, the expense will be updated.
If your card is temporarily suspended and you want to pay for any eligible expenses in the meantime, you can pay out of pocket and submit a claim with your receipt.
You can submit a Dependent Care FSA claim over the balance that you have available, but you'll only be reimbursed up to the amount you have in the account (if approved). You'll be reimbursed for the remaining balance over time or until you reach your annual DCFSA contribution.
When your DCFSA plan year comes to an end or you leave your company, choose a section below to learn about your deadline to submit claims.
If you cancel your DCFSA or your employer stops offering a DCFSA through Gusto, you have until 90 days after the last day of the plan to submit claims for services rendered during the plan year. This is called a runout period—you can find yours in the Benefits section of your employee account.
When an employee leaves the company, their Dependent Care FSA is terminated on the last day of employment.
You have until 90 days after your last day of employment to submit claims for services rendered during the plan year. This is called a runout period, and you can find yours in the Benefits section of your employee account.
You also have a grace period, which is extra time to spend any remaining funds on new expenses. For 2.5 months after your last day of employment, you can submit claims for qualifying expenses you incur during that time.
90 days after your last day of employment, any remaining funds left in your account are forfeited to the employer. Since DCFSAs are linked to the company's bank account, the funds remain there.
If you didn’t register for your Gusto Benefits Card Manager account during your employment, please reach out to [email protected] for your credentials.
Choose a section below for more ways to manage your benefits.
Employee deductions and company contributions remain in the company bank account until employees use their funds. Money only leaves the company bank account when an employee swipes their card or submits a claim. Each day, the sum of all employee’s DCFSA disbursements are debited from the company in one lump sum. These are debited as "MBI" or "Med-I-Bank."
On the first of each month, we email an employer disbursement report to benefit admins. The report lists all the previous month's individual transactions and claims so you can use it to reconcile the debits.
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 day care needs.
Check out the chart below for life events that qualify you to make changes, and click here for steps to change your DCFSA in Gusto.
Here are the contribution changes you can make:
| Event | Changes you can make |
| Change in day care needs |
|
| Relocation (only if it leads to a change in the cost of dependent care) |
|
| Court order |
|
| Birth or adoption |
|
| Marriage, domestic partnership, or civil union |
|
| Divorce or legal separation |
|
| You enroll in a different DCFSA |
|
| Your dependent enrolls in a different DCFSA |
|
| You or a dependent gain eligibility for a DCFSA |
|
| You aged out of a parent's plan |
|
| Death of a dependent |
|
| Dependent lost other coverage |
|
| Moved in or out of plan area |
|
| International relocation |
|
| Death of a dependent |
|
Follow the steps below to access your plan documents and any forms.