Dependent Care Assistance Plan (DCAP) (better known as a dependent care flexible spending account (DPFSA)) is a type of flexible savings account (FSA) that can be used by individuals with dependents to reduce taxable income. A person with eligible dependents sets up the account with their employers, allowing money to be withheld from their salary to go into the account and outside of the person’s taxable income. The Internal Revenue Service (IRS) sets limits on how much can be withheld each year without incurring taxes, with the limit being $5,000 in 2022. A person with a DCAP can use their own finances to pay for dependent expenses, and afterwards, they apply for reimbursement from the DCAP for eligible expenses. DCAPs can only be used for dependents under the age of 13 or those who have a qualified disability, and the DCAP will only cover certain expenses such for medical or sitter costs.
[Last updated in February of 2022 by the Wex Definitions Team]