In this paper we report detailed theoretical studies of formic acid-water clusters using a Gaussian implementation of Kohn-Sham density functional theory (DFT). Some MP2 calculations were made when necessary to make comparison. The newly developed Laplacian-dependent (LAP) functionals are extensively used although calculations with other traditional gradient-corrected functionals were also made for comparison. To assess our techniques we studied first the formic acid dimer. Good results for structures, vibrational frequencies and proton transfer barrier heights were achieved by the LAP functionals in contrary to other DFT methods, which usually give extremely low barrier heights. We obtained optimized structures of the formic acid-water clusters with up to 4 waters with many possible minimum energy states. The vibrational frequencies, successive hydration energy as well as the corresponding enthalpy were calculated. The interaction energy between formic acid and water was found to be larger than that of water-water. Ring-type structures are among the lowest in energy. Transition states were located for formic acid-water with various solvation patterns to study the effect of hydration on the proton transfer barrier. The transition state structures are of two fundamental types, i.e., a formic acid anion bound to H3O+-and H5O2+-centered structures, respectively. The proton transfer barrier is reduced by proper solvation of the transition states, notably to full and proper solvation of the hydrated proton units.