Dependent Flexible Spending Account Benefits
Amount You Can Elect
If you want to participate in the Dependent Care FSA, based on IRS rules you may choose any amount of annual contribution between $100 and $5,000 if you are:
- Married and file a joint return, or
- Married filing a separate tax return, but you are the custodial parent and furnish more than one-half the cost of supporting your eligible dependent child and either (1) you have a decree of separate maintenance or written separation agreement, or (2) your spouse maintains a separate residence for the last six months of the calendar year, or
- Single or a head of household for tax purposes.
If you are married, there are other IRS rules that may lower the amount you can set aside in your account:
- You cannot contribute more than your own annual pay or your spouse’s annual pay, whichever is less.
- Your spouse will be deemed to have earned income of $250 ($500 if you have expenses for the care of two or more dependents) for each month in which your spouse is (1) physically or mentally incapable of caring for himself or herself, or (2) a full-time student.
- If your spouse also puts money in a dependent care account through his or her employer, the two amounts added together cannot be more than the limits shown above.
You can be reimbursed up to the amount you have contributed to your Dependent Care FSA so far for the year. For example, if you elect $1,000 in annual contributions, but have only contributed $500 so far, the amount available to you for reimbursement at that time would be $500.
You can use the Dependent Care FSA to reimburse the cost of care for your eligible dependents.
An eligible dependent is a person (as described below) whom you claim as a dependent on your federal income tax return, who lives with you for more than half of the year, and who requires care so that you and your spouse (or you alone, if you are single) can work, actively look for work, or (with respect to your spouse) attend classes as a full-time student. This includes:
- Your child who is younger than age 13, or
- A disabled dependent, such as a child (any age), your husband or wife, a parent, or other relative, who cannot care for himself or herself (for expenses incurred outside of your household to be eligible, such person must regularly spend at least 8 hours per day in your household).
Eligible expenses generally include charges for the following types of expenses. For a more specific list, see the Navia web page “Day Care FSA – List of Eligible and Ineligible Expenses.”
- Nursery schools,
- Licensed day care centers,
- Before- or after-school day care programs
- Caregivers for your children or other dependents (in or out of your home), and
- Care for a disabled spouse or other dependents at home or in approved centers (does not include permanent, full-time nursing home care).
Expenses That Are Not Eligible
You cannot use money in your Dependent Care FSA for the following types of expenses. For a more specific list, see the Navia web page “Day Care FSA – List of Eligible and Ineligible Expenses.”
- Amounts paid to one of your dependents (someone you claim as a tax exemption) or your own child who has not reached age 19 by the end of the year to care for another dependent.
- Expenses for care that is not needed for you to be able to work, such as paying a babysitter while you go to the movies.
- Expenses already claimed as deductions or credits on an income tax return (such as the dependent care credit), which means you cannot take a tax deduction and pay for the same expense with tax-free dollars through your account.
- Expenses for day care that does not meet state or local requirements.
If you use the Dependent Care FSA, you must file IRS Form 2441 with your annual 1040 tax return. On the form, you must report your dependent care provider’s name, employer identification number or Social Security number, and the amount you paid the provider.
Dependent Care FSA vs. Federal Dependent Care Tax Credit
A federal tax credit for dependent care is also available, but you cannot use it for expenses you have reimbursed through the Dependent Care FSA. Generally, the Dependent Care FSA provides better tax savings than the tax credit. However, depending on your income level, you may benefit more from the tax credit. You may want to consult a qualified tax advisor.
Terminating Employment During the Plan Year
If your employment is terminated during the calendar year, your active participation in the Dependent Care FSA will cease on the day your employment is terminated, and you will not be able to make any more contributions to the Dependent Care FSA. However, you may file claims for any eligible expenses incurred while you were still employed, until March 31 of the following year.