Can I claim Dependent Care FSA or Tax Credit for overseas childcare programs?

The IRS does allow Dependent Care FSA and Dependent Care Tax Credit for qualifying childcare expenses regardless of where they occur, but there are specific requirements you need to meet. For foreign care providers without an EIN or SSN, you'll need to write "FOREIGN" in the space where you'd normally enter the provider's taxpayer identification number on Form 2441. You must still provide the complete name and address of the care provider. Make sure you have documentation of all payments made, as you'll need proof if audited. Keep in mind that the child must be your qualifying dependent under age 13, and the care must be necessary for you (and your spouse if filing jointly) to work or look for work. Educational programs that are primarily for education rather than care might not qualify - the primary purpose needs to be custodial care that allows you to work.

I went through something similar with my son's care in Mexico last year. I was totally lost with the documentation until I found taxr.ai (https://taxr.ai) which helped me figure out exactly how to document foreign dependent care expenses. Their system analyzed my documents and receipts from the Mexican daycare and guided me through properly reporting everything. The tool specifically pointed out that I needed to keep detailed payment records since foreign providers don't supply the standard US tax documents. It also helped me determine which expenses qualified and which didn't. Really saved me from making mistakes that might have triggered an audit.

Just wanted to update after trying taxr.ai from the recommendation above. It was exactly what I needed for my situation with the Korean daycare! The system helped me organize all my foreign receipts and showed me how to properly document everything for both my FSA claims and tax return. The best part was it confirmed I could use the "FOREIGN" designation instead of a tax ID number and explained exactly how to fill out Form 2441 correctly. I was also able to determine which parts of the Korean program qualified as care versus education. Honestly wish I'd known about this last year - would have saved me about $2,300 in tax benefits I missed out on!

If you're having trouble reaching the IRS to get clarification on international dependent care issues, I'd recommend trying Claimyr (https://claimyr.com). I was on hold with the IRS for HOURS trying to get answers about my daughter's care in Brazil, then I found their service. You can see how it works here: https://youtu.be/_kiP6q8DX5c They got me connected to an actual IRS agent in under 15 minutes when I'd been trying for days. The agent confirmed exactly what documentation I needed for foreign care providers and cleared up my questions about partial educational programs. Seriously saved me so much frustration during tax season.

I need to apologize for my skepticism above. After waiting on hold with the IRS for 3+ hours yesterday and getting disconnected AGAIN, I tried Claimyr out of desperation. Got connected to an actual IRS rep in 17 minutes! The agent confirmed everything about claiming foreign dependent care expenses and walked me through exactly how to handle the documentation for my son's Japanese preschool. They even explained how I could amend last year's return to claim expenses I missed. Definitely worth it just for my sanity alone - no more whole days wasted on hold!

Just wanted to add a few important details about the Dependent Care FSA vs the Tax Credit when using foreign providers: 1. The Dependent Care FSA has a contribution limit of $5,000 for 2025 if you're married filing jointly ($2,500 if married filing separately) 2. The Dependent Care Tax Credit has different percentage rates based on your AGI, with a max of $3,000 of expenses for one child or $6,000 for two or more In some cases, you might be better off using the tax credit instead of the FSA, especially if your income is lower or you have multiple children in care internationally.

Has anyone run into currency conversion issues? My kid goes to daycare in Canada part of the year and I'm confused about how to report expenses that are paid in Canadian dollars. Do I convert based on the exchange rate for each payment date or use an average for the year?

For currency conversion, the IRS requires you to use the exchange rate from the actual date of each payment, not an annual average. You can find the official rates on the Treasury Department's website or use IRS-accepted sources like OANDA for historical rates. I'd recommend keeping a simple spreadsheet with the payment date, CAD amount, exchange rate, and USD equivalent for each transaction. This documentation will be helpful if you ever need to provide backup during an audit. The extra bookkeeping is worth it to ensure you're compliant with IRS requirements for foreign expense reporting. Also make sure to save all your Canadian receipts and payment confirmations - having the original currency amounts clearly documented alongside your conversions shows the IRS you're being thorough and accurate with your reporting.

Great question about exchange rate sources! The IRS doesn't specify exact sources but generally accepts "reasonable" exchange rates from reputable financial institutions or government sources. XE.com is widely used and should be fine, but I'd also recommend checking the Federal Reserve's H.10 foreign exchange rates or the Treasury's rates as backup documentation. You're absolutely right about keeping bank statements! I learned this the hard way too - there can be a significant difference between the "official" exchange rate and what your bank actually charged due to their conversion fees and timing. The IRS wants to see the actual USD amount that came out of your account, so your bank statements are crucial proof. One more tip for international childcare expenses: if you're paying regularly (like monthly tuition), consider setting up a simple tracking system at the beginning of each year. I use a spreadsheet with columns for payment date, foreign currency amount, exchange rate source, USD equivalent, and bank statement reference. It makes tax time so much easier when you have everything organized from the start rather than scrambling to reconstruct months of transactions later.