A dependent care flexible spending account (FSA) is part of your benefits package, and it lets you use pre-tax dollars to pay for eligible, employment-related dependent care expenses for your dependent children or relatives.
Here's how an FSA works. Money is set aside from your paycheck before taxes are taken out. You can then use your pre-tax FSA dollars to pay for eligible dependent care expenses throughout the plan year. You save money on expenses you're already paying for like day care and preschool.
Employees with young children or dependent relatives, who are considered "qualifying individuals," can benefit from dependent care FSAs. Setting aside pre-tax dollars means you pay fewer taxes and increase your take-home pay by your tax savings. You save money on expenses that you are paying for out of your pocket. The amount you save depends on your tax bracket. For example, if you are in the 30 percent tax bracket, you can save $30 on every $100 spent on eligible expenses such as day care, after-school care, elder day care and much more.
A qualifying individual is:
Having a dependent care FSA depends on if you are the custodial parent or not.
To be an eligible dependent care FSA expense, the care provided to your dependent must be so you (and your spouse if you're married) can work or look for work. "Work" may include actively looking for a job, but it doesn't include unpaid volunteer work or volunteer work for a nominal salary. Your spouse is considered to have worked if he or she is a full-time student for at least five calendar months during the tax year or if he or she is physically or mentally not able to take care of him or herself.
Fees you pay for dependent care when you aren't working because you're sick generally are not eligible for reimbursement. But, there is an exception to this rule. Temporary absences from work may be disregarded if you have to pay for dependent care expenses during your illness. Whether an absence is for a short time depends on the situation, but as a rule, the IRS says that an absence of up two weeks in a row due to illness or vacation is a short-term or temporary absence.
As a rule, you must allocate (divide) expenses between the days you work and the days you don't. However, if you work part-time but are required to pay for dependent care expenses for a specific time frame (including non-working days), you do not have to allocate expenses between days worked and days not worked. Check out these examples:
A dependent care FSA covers qualified dependent care expenses incurred for the care of one or more eligible dependent children or relatives. Typical eligible expenses include:
See more examples on our Dependent Care FSA Eligible Expenses page.
Ineligible expenses include the following:
View a list of eligible and ineligible expenses on our Dependent Care FSA Eligible Expenses page.
The amount you put into an FSA is called an "election," and your election can't be more than the maximum amount set by the IRS. Currently, the maximum amount is $5,000 each plan year. However, if you're married and file separate tax returns, the maximum amount is $2,500.
Although the maximum limit is $5,000 at this time, your maximum yearly contribution amount cannot exceed the earned income limit. If you are single, the earned income limit is your salary (excluding your contributions to the dependent care FSA plan). If you are married, the earned income limit is the salary that is the lowest - either your salary (minus your dependent care FSA contribution) or your spouse's salary.
No. If you are married and file a joint tax return, your combined maximum election amount is $5,000. As mentioned, if you are married but filing separate tax returns, the maximum amount is $2,500. Expenses reimbursed under your dependent care FSA can't be reimbursed under your spouse's dependent care FSA and vice versa. You can't "double dip" from both accounts for the same expenses.
No. Tuition fees for kindergarten or first grade and above aren't eligible expenses under a dependent care FSA. However, expenses for before-school care, after-school care, and nursery school are eligible if the care is mainly custodial (care or services for basic needs).
No. To be an eligible expense, the care must be provided to a qualifying individual. A child age 13 or older isn't a qualifying individual.
No. You may not be reimbursed for paying an older sibling that you (or your spouse) can claim a personal tax exemption as a dependent. Nor can you be reimbursed for payments made to your child who is younger than age 19 at the end of the plan year.
Yes. You must identify all people or organizations that provide care for your child or dependent. You do this by filing IRS Form 2441 - Child and Dependent Care Expenses along with your Form 1040 each year (or Schedule 2 for Form 1040A).
Please note: The IRS may change these requirements, so talk to your tax advisor for more details.
No. You may not claim any other tax benefit for the tax-free amounts received by you under the dependent care FSA, even though the balance of your eligible, work-related dependent care expenses (if any) may be eligible for the dependent care credit. Talk to your tax advisor to get more details.
You should file your claim for the actual amount of the expense - in this case, it's $500. The maximum reimbursement you can get is equal to the current account balance in your dependent care FSA. If your request for reimbursement is more than the available balance in your dependent care FSA, the remaining amount will be put on hold and paid when funds are in your account.
The IRS has a "use-it-or-lose-it" rule. It requires that all money you put into your FSA must be used to reimburse qualified expenses incurred during that plan year. Funds that are left over after the plan year ends are forfeited. The unused portion of your dependent care FSA cannot be paid to you in cash or other benefits. You can't transfer money between FSAs. To reduce the risk of losing money at the end of your plan year, carefully estimate your expenses when choosing your annual election amount.
This form is available online at mybenefits.conexis.com. Just log in to your account to find it.
If the employee and provider certifications on the reimbursement request form are filled out and signed, you don't need to do anything else. If the provider certification is not completed and signed, you must submit an itemized statement from your dependent care provider. This statement must have the date(s) of service, the name(s) and date(s) of birth of your dependent(s), an itemization of charges, and the provider's name, address, and Tax ID or Social Security number.
Yes, you must use your FSA funds before the end of the coverage period. To help you maximize your FSA dollars, your plan includes both a run-out period and a grace period extension.
Example: Your plan year runs from January 1 to December 31, 2011 and you have a run-out period through April 15, 2012. If you have a baby sitting expense on December 22, 2011, you can use your 2011 FSA funds because the cost is for care received during 2011. You must submit your reimbursement request by April 15, 2012 - the end of your run-out period.
Example: Your plan year runs from January 1 to December 31, 2011 and you have a grace period through March 15, 2012. You incur an elder day care expense on January 16, 2012. You can use 2011 unused FSA funds because the cost is associated with care received during the grace period. You must submit your reimbursement request by before the end of the run-out period on April 15, 2012.
Even if you have a run-out period or grace period, it's important to plan carefully when you decide how much to put in your FSA. Don't think of the grace period as an extension of the plan year. It's more like a cushion in case your expenses fall a little short of what you expected.
Your election can't be changed during the plan year unless you have a change in status or other qualified event - that's an event defined by IRS rules - and the UC plan must allow the change as well. Qualified changes in status events include:
There are two parts to determining if a change in election will be allowed. First, you must experience a change in status or other qualified event. Second, your requested change must be consistent with the event. For example, if you have a baby, you could increase your FSA contribution. Please see your Summary Plan Description for more information about other qualified changes, consistency requirements, and exceptions that may apply.
You may also change your dependent care FSA election if:
Please note: The information above assumes that your FSA plan allows all changes permitted under the IRS rules. An employer may restrict mid-year election changes by the way the plan is set up. Please see your Summary Plan Description for specific rules that apply to your plan. If you have a change in status or other qualified event, please contact your human resources or benefits representative to obtain the forms you will need to complete.
If you stop working for UC or you lose your FSA eligibility, your plan participation and your pre-tax contributions will end automatically. Expenses for services you have after your termination date are not eligible for reimbursement.
Your account information is available anytime day or night by logging in to your online account. Log in and find: