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Question: Can an employee pay the cost of preschool with a dependent care flexible spending account (FSA)?

Answer: Expenses for preschools, nursery schools, or similar programs for children below the level of kindergarten often qualify for reimbursement from the employee’s dependent care FSA. Not all cases will qualify, though, so be sure three specific conditions are met.

First, the dependent care expenses must be work-related. That is, the expenses are for the care of the employee’s child so the employee can work. If married and filing jointly, the employee’s spouse also must be gainfully employed or looking for work (unless disabled or a full-time student). If, however, the employee (or spouse) is available to care for the child during the day, the expenses will not qualify for reimbursement.

Secondly, the child receiving the care must be under age 13 (or disabled). This article focuses on pre-kindergarten expenses, so we assume the children are quite young.

Lastly, the expenses are primarily for child care and not for educational purposes. Under IRS rules, expenses for preschools, nursery schools, and similar programs below the level of kindergarten automatically are considered non-educational. The facility may include some educational activities, but the primary purpose should be for the child’s “well-being and protection,” similar to baby-sitting. On the other hand, if the facility charges tuition or educational fees in addition to the cost of child care, the extra charges likely do not qualify for reimbursement.

Another question we often receive is about application fees or deposits that the preschool requires in advance. Are those costs eligible for reimbursement? Yes, provided the costs are required for the child to receive care. After the facility begins providing care, the employee can be reimbursed for the application fee or deposit. On the other hand, if the employee cancels and the child does not attend, none of the costs are eligible as dependent care expenses.

For detailed information about expenses eligible for dependent care FSA reimbursement, the IRS provides a helpful guide Publication 503 “Child and Dependent Care Expenses”.

Kathy Berger
Kathy Berger is ThinkHR’s principal benefits consultant. She is a Certified Employee Benefits Specialist (CEBS) with over 25 years of experience working with brokers and employers. Kathy uses her extensive knowledge of ERISA, HIPAA, the ACA, and other benefits laws and regulations to assist our clients with practical information in clear language.