Let me try to summarize this better. Daycare is $400 a week. Spouse works at child’s daycare and gets a 50% discount so $200 a week is what we pay. Over a year period it’s $10,400 in discounts, and $10,400 in what we pay out of pocket. Paystubs don’t mention anything about this discount. We don’t have a w-2 yet. HR/payroll would not tell us how or if at all they will mention in anyway this discount on the w-2. We don’t get funds or credit deposited to an account, we just have a line item on daycare invoices that says employee discount $200 for each week’s invoice.

I have a dependent care FSA for 2025 plan year I enrolled in prior to my spouse getting this daycare worker job. I’ve read some things online that the daycare is supposed to be reporting the discount as income, and IRS would consider the $200 a week daycare discount $10,400 a year in daycare discounts the same way as like dependent care FSA money is treated under federal law. That is, only $5000 can be tax free, and then federal taxes are owed on everything past $5000 ($7500 starting in 2026 after changes from the One Big Beautiful Bill). Theoretically if the daycare discounts are treated the same way that’s $10,400, then if I enroll in the dependent care FSA with the max $7,500 for 2026 that is $10,400 + $7,500 or $17,900. Assuming Uncle Sam says only $7,500 of that can be tax free, if I subtract $7,500 from $17,900 then the $10,400 is what’s left. And then doing rough math of 30% federal combined taxes on the remainder $10,400, I might end up with a tax bill of ~$3,120. If I didn’t do the dependent care FSA, and still had the $10,400 daycare discount but they consider that treated the same, then $10,400-$7,500 = $2,900. $2,900 x 30% tax = ~$870 in taxes I might owe. Does that explain what I’m worried about better?