Dependent Care FSAs
A dependent care flexible spending account (FSA) allows you to use pretax dollars to pay for eligible expenses related to care for your qualified dependent so that you can work. If you are married, it can allow your spouse to work, look for work, or attend school full time. These are completely separate accounts from medical FSA’s.
Who is eligible?
To participate, you must have eligible expenses and at least one qualified dependent. If your spouse is a stay-at-home spouse, you cannot participate in this type of FSA.
- Child(ren) under age 13
- Dependents of any age who are mentally or physically incapable of caring for themselves
- An adult (e.g., elderly parent) may qualify as your dependent; see IRS publication 503
Examples of typical eligible expenses include:
- Fees for licensed day care or adult care facilities
- Before and after school care programs
- Summer day camp (if attendance allows you or your spouse to work or attend school)
- Babysitters (if paid to allow you or your spouse to work or attend school)
What are the potential savings?
You elect to contribute the maximum ($5,000) to your FSA for the year. This is deducted pre-tax from your paychecks, so you do not pay federal, state, or FICA taxes on this money. If you are in the 25% tax bracket, you are saving $1,833 (36.65%).
Alternatively, there is a federal child care tax credit. If you claimed the same $5,000 in dependent care costs, you would receive a credit of only $1,000 when you file your taxes (if you earn more than $43,000). So it is usually a better idea to set up the FSA.
If you expenses exceed the FSA contribution limit, you may be able to contribute the maximum to an FSA and also receive a tax credit on part of the additional amount paid. When you file your taxes, you may receive up to an additional $200 credit. Consult a tax professional for more information.
What is the process?
- Calculate the amount you wish to have withheld from your 2017 paychecks (this cannot be changed). Be conservative when determining this amount – if you do not spend all of the money, you will lose it.
- During HFC open enrollment in the fall, sign up for this benefit and enter the amount that should be withheld.
- In January, set up online account access with the FSA administrator (Discovery Benefits).
- Complete the ‘Recurring Dependent Care Request Form’ from Discovery Benefits (must be signed by the care provider ), or send individual receipts to the FSA administrator.
- After each paycheck, you will be reimbursed for that month’s expense (i.e., you can only be reimbursed after that money is deposited in your FSA). Direct deposit is offered.
Information about FSAs https://www.discoverybenefits.com/products/medical-flexible-spending-accounts
A calculator to help compare savings https://www.discoverybenefits.com/employees/fsa-calculator
IRS publication 503: Child and Dependent Care Expenses https://www.irs.gov/pub/irs-pdf/p503.pdf