Dependent Care Expenses in Beancount: FSA, Tax Credits, and the New 2026 Benefits

accountant_alice · January 29, 2026, 9:51pm

The One Big Beautiful Bill Act significantly enhanced dependent care benefits starting in 2026. Here’s how to set up Beancount to capture every dollar of tax savings.

What Changed in 2026

Dependent Care FSA:

Annual limit increased from $5,000 to $7,500 ($3,750 if married filing separately)
This is a PERMANENT increase, not temporary

Dependent Care Tax Credit:

Maximum percentage increased from 35% to 50%
Phase-down is more gradual
Expense limits remain $3,000 (one child) / $6,000 (two+ children)

The FSA vs Credit Decision

You can’t double-dip - expenses paid with FSA dollars don’t qualify for the credit. So which is better?

Use the FSA when:

Your marginal tax rate (federal + state) exceeds ~25%
You’re certain you’ll have qualifying expenses
You want the steady paycheck reduction vs year-end credit

Use the Credit when:

Your AGI is below $75,000 (single) / $150,000 (joint)
You want flexibility (credit based on actual expenses)
You’re uncertain about childcare costs

The Math Example (2026):

Family earning $120,000 joint with $10,000 in childcare:

Approach	Tax Savings
FSA only ($7,500)	~$2,250 (at 30% marginal rate)
Credit only	$1,320 (22% credit on $6,000)
FSA $4,500 + Credit on remainder	~$1,800 + $495 = $2,295

Often a combination is optimal!

The Account Structure

; Dependent Care FSA
2026-01-01 open Assets:FSA:DependentCare    USD
2026-01-01 open Expenses:Kids:Childcare:FSA USD

; Out-of-pocket childcare (for credit)
2026-01-01 open Expenses:Kids:Childcare:OOP USD

; Tracking by provider (useful for records)
2026-01-01 open Expenses:Kids:Childcare:Daycare    USD
2026-01-01 open Expenses:Kids:Childcare:SummerCamp USD
2026-01-01 open Expenses:Kids:Childcare:Babysitter USD

Tracking FSA Contributions and Claims

Payroll contributions:

2026-01-15 * "Paycheck - FSA contribution"
  Assets:FSA:DependentCare    288.46 USD  ; $7,500 / 26 paychecks
  Income:Salary              -xxx.xx USD
  ; (simplified - normally net pay to bank)

Claiming from FSA:

2026-01-31 * "Little Stars Daycare - January"
  provider-tin: "XX-XXXXXXX"  ; Required for FSA claims
  fsa-eligible: TRUE
  Expenses:Kids:Childcare:FSA    1200.00 USD
  Assets:FSA:DependentCare      -1200.00 USD

Tracking Credit-Eligible Expenses

2026-07-15 * "Summer Camp - Week 3"
  dependent-care-credit: TRUE
  child: "Emma"
  work-related: TRUE  ; Required - must be so you can work
  Expenses:Kids:Childcare:OOP    400.00 USD
  Assets:Bank:Checking          -400.00 USD

What Qualifies? (Common Questions)

Qualifies:

Daycare / preschool
Before/after school programs
Summer day camps (work-related)
Babysitter/nanny (must report their income!)
Au pair expenses (within limits)

Does NOT qualify:

Overnight camps
Tutoring (but 529-eligible!)
Food included in childcare (must separate)
Care for child 13+ (unless disabled)

Year-End Tax Report Query

; Total FSA used
SELECT SUM(COST(position))
WHERE account ~ 'FSA:DependentCare' AND META('fsa-eligible') = TRUE

; Total credit-eligible  
SELECT SUM(COST(position))
WHERE META('dependent-care-credit') = TRUE

Documentation Checklist

For both FSA and credit, keep records of:

Provider name, address, and TIN/SSN
Dates of service
Amount paid
Child’s name and age
Proof it was work-related

Beancount metadata makes this easy to track alongside the transactions!

Questions? Dependent care rules are complex but the tax savings are significant - up to $3,750 from FSA + $1,500 from credit for a family with multiple kids.

tax_tina · January 29, 2026, 9:52pm

Great breakdown, Alice! Let me add some nuance on the FSA vs Credit optimization:

The Break-Even Analysis

The key question: At what tax rate does FSA beat the credit?

For lower-income families (AGI < $43k):
Credit percentage is 35-50%. FSA only makes sense if your marginal rate exceeds 35%. For most in this bracket, use the credit.

For middle-income ($43k-$103k joint):
Credit phases down to 20-35%. Run both calculations. Often a hybrid approach wins.

For higher-income (>$103k joint):
Credit stuck at 20%. If your marginal rate is 24%+, FSA wins clearly.

Don’t Forget State Taxes!

FSA contributions avoid:

Federal income tax
State income tax (most states)
Social Security tax (6.2%)
Medicare tax (1.45%)

That’s potentially 7.65% extra savings that the credit doesn’t provide. Add state tax and many families see 30-35% effective benefit from FSA.

One Trap: The “Use It or Lose It”

FSA funds expire! Plan carefully:

Most plans have a 2.5-month grace period OR $640 carryover (not both)
Track remaining balance monthly
If you overcontributed, find qualifying expenses fast!

I always recommend underestimating childcare costs slightly in your FSA election, then using the credit for any excess expenses.

finance_fred · January 29, 2026, 9:52pm

Here’s my actual workflow for tracking daycare - it’s simpler than you might think:

My Monthly Daycare Tracking

We pay ~$1,800/month for daycare. Here’s my process:

1. When the bill hits:

2026-01-15 * "Sunshine Daycare - January"
  provider-name: "Sunshine Learning Center"
  provider-tin: "12-3456789"
  fsa-eligible: TRUE
  Expenses:Kids:Childcare:Daycare    1800.00 USD
  Liabilities:CreditCard:Chase      -1800.00 USD

2. Monthly FSA claim:

2026-01-20 * "FSA Reimbursement - Daycare"
  Assets:Bank:Checking     625.00 USD  ; $7,500/12 months
  Assets:FSA:DependentCare -625.00 USD

3. Year-end reconciliation:
I run a query to total all fsa-eligible: TRUE transactions and confirm it matches my FSA claims.

The Time-Saving Tip

I use a recurring transaction template. Daycare is the same amount every month (except when they close for holidays). I copy/paste and just update the date.

For irregular expenses (babysitter, summer camp), I tag them as dependent-care-credit: TRUE since they go beyond my FSA amount.

My FSA Balance Tracking

I keep a running balance check:

SELECT 
  SUM(CONVERT(balance, 'USD')) as fsa_remaining
WHERE 
  account = 'Assets:FSA:DependentCare'

When this gets low (November), I make sure I have enough qualified expenses coming to use it up before year-end.

helpful_veteran · January 29, 2026, 9:52pm

For category structure, here’s what evolved from my experience:

Category Evolution

Year 1 (before kids):

Expenses:Misc

Year 2 (first daycare payment):

Expenses:Childcare

Year 5 (tax optimization mode):

Expenses:Kids:Childcare:FSA
Expenses:Kids:Childcare:OOP
Expenses:Kids:Childcare:NonQualifying

My Current Structure

; Qualifying for tax benefits
Expenses:Kids:Childcare:FSA       ; Paid from Dependent Care FSA
Expenses:Kids:Childcare:OOP       ; Credit-eligible out-of-pocket

; Not qualifying (still want to track)
Expenses:Kids:Childcare:Overnight ; Camp, doesn't qualify
Expenses:Kids:Childcare:Over13    ; Teenager sitting doesn't qualify

The Key Insight

Split by tax treatment, not by provider type.

I used to have Daycare, Babysitter, Camp. But what I actually needed was FSA-eligible, Credit-eligible, and Not-qualifying.

This made tax time much easier - just sum the appropriate accounts rather than filtering by metadata on every transaction.

For Beginners

Start with just Expenses:Kids:Childcare. You can always split it later. The important thing is tracking it at all - refinement comes with experience.