Question: Can an employee pay the cost of preschool with a dependent care flexible spending account (FSA)?
Answer: Expenses for a child in nursery school, preschool, or similar program for children below the level of kindergarten are considered reimbursable expenses for dependent care. These programs may provide an educational and or social experience; however, the primary intent is caring for a child, and therefore allowable.
There are two determining factors in this situation, including (1) whether the child receiving care is a “qualified dependent” and (2) if the expense is for “care” of the qualifying person. Per IRS Publication 503, child care expenses are only allowed if, “the main purpose is the person’s well-being and protection.” The publication also states that, “Expenses for a child in nursery school, preschool, or similar program for children below the level of kindergarten are expenses for care. Expenses to attend kindergarten or a higher grade are not expenses for care.”
In most cases, tuition is not considered an allowable expense for FSA reimbursement. This again is because the intention of a program where tuition exists is typically to provide an educational experience, which has a primary service of providing education for a fee (tuition) rather than acting as a care service comparable to replacing a “babysitter.” A good method to determine if a child service provider is an educational or day care program would be to assess if the organization sets expectations as to what a child will know or learn by certain timeframes or stages. When this scenario exists, it is likely not a care service.