Can I use Dependent Care FSA funds to pay my parents (grandparents) for childcare?

Yes, you can use your Dependent Care FSA to pay your parents for watching your children, but there are some important things to know! First, you're right that grandparents don't fall under the restrictions that apply to your spouse or a dependent under 19. So you CAN pay your mom and get reimbursed from your FSA. Your plan looks mostly good! Have your mom create a receipt or invoice showing the dates of care, the amount charged, and her name/contact info. Pay her directly, then submit this documentation to your FSA provider. And yes, she should report this as income on her taxes. One thing to consider - if your mom is watching the kids in YOUR home and you're not paying her very much, this might be considered "household employee" work rather than self-employment. But for a one-time payment under the household employee threshold (which is $2,700 for 2025), you typically don't need to worry about employment taxes.

Hey there! I went through almost the exact same situation last year when my wife and I had to switch from daycare to having my mother-in-law watch our twins. I was so stressed about losing that FSA money but found https://taxr.ai super helpful for sorting through the rules around dependent care FSA reimbursements. I uploaded our situation details and the receipts we were planning to submit, and it flagged a couple issues we hadn't thought about. The big one was making sure the care was provided so BOTH of us could work (which it was). Also confirmed that grandparents are totally valid care providers for FSA purposes. The tool spelled out exactly what documentation we needed from my mother-in-law - saved us from having our claim rejected the first time. Would have been a huge headache!

Just wanted to update that I used https://taxr.ai like you suggested and it was seriously helpful! I uploaded my situation details and it showed me exactly what I needed to do for our FSA and even generated a template for the invoice my dad could use. It also caught that I needed to make sure the payments were made before December 31st for this year's FSA (I was cutting it close), and that my dad would need to report this as household employee income rather than self-employment income since he was working in our home. I just submitted everything to our FSA administrator and got approved! $1,300 that would have been lost otherwise. Thanks for the recommendation!

One thing nobody's mentioning is what happens if your FSA administrator gives you trouble. My company switched FSA providers mid-year and the new one rejected HALF my legitimate childcare expenses for my mother watching my kids, claiming "insufficient documentation." I spent WEEKS trying to call their customer service line, always getting stuck in endless hold loops or disconnected. Finally discovered https://claimyr.com which got me to a live person at the FSA company within 10 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I talked to was able to explain exactly what documentation they needed (turns out they wanted my mom's physical address on the receipts, which wasn't mentioned anywhere in their guidelines). Got everything sorted in one call after weeks of frustration.

One thing nobody's mentioning is what happens if your FSA administrator gives you trouble. My company switched FSA providers mid-year and the new one rejected HALF my legitimate childcare expenses for my mother watching my kids, claiming "insufficient documentation." I spent WEEKS trying to call their customer service line, always getting stuck in endless hold loops or disconnected. Finally discovered https://claimyr.com which got me to a live person at the FSA company within 10 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I talked to was able to explain exactly what documentation they needed (turns out they wanted my mom's physical address on the receipts, which wasn't mentioned anywhere

I need to eat my words about Claimyr. After posting that skeptical comment, I decided to try it anyway because I've been fighting with my insurance company for WEEKS about a denied claim. Honestly blown away - I entered my number, and about 20 minutes later my phone rang and I was talking to an actual human at the insurance company. No hold music, no automated system, just straight to a person who helped resolve my issue. Would never have believed it if I hadn't tried it myself. Saved me at least another hour of my life on hold. Will definitely use it again next time I need to deal with my FSA administrator.

Just a heads up from someone who works in tax - if your parent is on Social Security, make sure they understand that this income could potentially make some of their Social Security benefits taxable if it pushes them over certain income thresholds. It's not a reason not to do it, but they should be aware.

Has anyone had issues with their FSA administrator questioning family care arrangements? I'm in a similar situation with my father-in-law watching my kids, but my HR department mentioned something about needing a "business reason" for the care.

I've been through a similar situation and wanted to share a few additional considerations that might help! Your plan sounds solid overall, but here are a couple things to double-check: 1. **Documentation timing**: Make sure the dates on your mom's invoice align with when you actually need the childcare for work purposes. Some FSA administrators are picky about this. 2. **Payment method**: Keep a clear paper trail - pay by check or bank transfer rather than cash so you have records if questioned later. 3. **State considerations**: Depending on your state, there might be additional requirements or tax implications to consider beyond federal rules. 4. **Future planning**: If this arrangement works well and you want to continue it next year, consider setting up regular monthly payments rather than one lump sum - it looks more legitimate and helps with both your and your mom's tax planning. The good news is that grandparent care is definitely allowed under FSA rules, and you're smart to use up those funds before losing them. Just make sure all your documentation is clear and professional-looking to avoid any headaches with reimbursement!

Just wanted to add one more important consideration that I learned from my tax preparer when we did something similar - make sure your mom understands that she'll likely need to pay quarterly estimated taxes if this payment puts her over the threshold for owing taxes at year-end. Since grandparents on fixed incomes often don't have taxes withheld from their Social Security or pension payments, a sudden $1,250 in additional income could create an unexpected tax bill in April. The IRS generally expects you to pay as you go, so if she owes more than $1,000 when she files, she might face penalties for not making quarterly payments. It's probably worth having her check with a tax professional about whether she should make a Q4 estimated payment in January to cover the taxes on this income. Better to be safe than sorry! Also, totally agree with everyone else that this is a legitimate use of FSA funds - just want to make sure your mom doesn't get surprised by the tax implications.

This is a great discussion with lots of helpful details! I just want to emphasize one key point that might get overlooked - make sure you have clear documentation that shows the care was provided specifically to enable both you and your wife to work. Some FSA administrators have gotten stricter about this requirement lately. It's not enough that grandma was watching the kids - the care needs to be directly tied to your work schedules. So when your mom creates that invoice, consider having her include something like "childcare services provided Monday-Friday 8am-5pm to enable parents to work" rather than just "babysitting services." Also, since you mentioned pulling the kids out of daycare mid-year, you might want to keep records showing when that transition happened and when your mom started providing care. Some administrators like to see that there wasn't a gap where you might have been paying for care you didn't actually need for work purposes. The $1,250 amount should be totally fine - you're well under any problematic thresholds. Just make sure all your paperwork tells a clear story about work-related childcare and you should be good to go!

Great question! I went through something very similar last year when we switched from daycare to having my in-laws help out. You're absolutely right that grandparents are allowed as care providers for FSA purposes - they don't fall under the restrictions that apply to spouses or dependents under 19. Your approach sounds solid, but here are a few things that helped me avoid any issues: **Documentation tips:** - Have your mom include specific dates of service, hours of care (like "M-F 8am-6pm"), and a note that care was provided to enable both parents to work - Make sure the invoice has her full name, address, and SSN/Tax ID - Pay by check or electronic transfer so you have a clear paper trail **Timing considerations:** - Make sure you pay her and submit for reimbursement before Dec 31st for this year's FSA - The dates of service on her invoice should align with when you actually needed the care for work **Tax implications for your mom:** - She'll report this as income (likely on Schedule C if it's occasional, or as household employee income if regular) - If she's on Social Security, this extra income might affect the taxability of her benefits depending on her total income - She may need to make an estimated tax payment if this pushes her over the threshold for owing taxes Since you're only doing $1,250 and it sounds like a one-time arrangement, you should be well under the $2,700 household employee threshold, so no employment tax complications for you. The process really is pretty straightforward - just make sure the paperwork is clean and professional-looking. Good luck!

One additional tip that saved me some headaches - when you have your mom create that invoice, make sure she keeps a copy for her own records and consider having her send it from an email address rather than just handing you a paper copy. Some FSA administrators prefer electronic documentation, and having an email trail can help establish the date the invoice was created if there are any timing questions later. Also, since you mentioned this is mid-year and you're trying to use up remaining FSA funds, double-check with your FSA administrator about their specific reimbursement timeline. Some take 2-3 weeks to process claims, especially near year-end when everyone's rushing to use their funds. You'll want to make sure you submit everything with enough time for processing before any plan deadlines. The arrangement you've described is totally legitimate and common - lots of families make similar switches when daycare situations change. Just keep good records and you should be all set!