FSAFEDS Summary of Benefits: DCFSA | PRINT THIS PAGE | Close this Window |
What is a Dependent Care (Day Care)
Flexible Spending Account?
A Dependent Care (Day Care) Flexible
Spending Account (DCFSA) allows you to be reimbursed on a
pre-tax basis for child care or adult dependent care expenses
for qualified dependents that are necessary to allow you or
your spouse to work, look for work (with income during the year), or your spouse to attend school
full-time. However, if you did not find a job and have no
earned income for the year, your dependent care costs are not
eligible (see the next FAQ for more information). Your DCFSA can be used to reimburse you with pre-tax dollars
if the expenses for your dependents meet the IRS definition of
dependent care expenses for income tax purposes. An adult (e.g., parent,
grandparent, adult disabled child) may qualify as a dependent
if you are providing more than half of that person's
care for the year. To learn more, visit the FSAFEDS Video Library and watch the
"Dependent Care FSA" video. Back to Top
Do I, or my spouse if married, have to earn income during the year to use a Dependent Care (Day Care) FSA (DCFSA)?
A DCFSA allows you to be reimbursed on a pre-tax basis for childcare or adult dependent care expenses for qualified dependents that are necessary to allow you or your spouse to work, look for work (with income during the year), or your spouse to attend school full-time. You (and your spouse if you are married) must have earned income during the year, however if your spouse attends school full-time he or she does not need to have earned income. Under Internal Revenue Code section 129 (see sections 129(a)(2)(A) and 129(b)(1)), the maximum amount that can be elected for a DCFSA is limited to the lesser of:
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My spouse and I both elected a Dependent Care (Day Care) FSA and our combined election exceeds the maximum $5,000 household limit. Can my FSAFEDS account be adjusted or cancelled so we do not exceed the $5,000 maximum amount?
No. Your FSA elections are irrevocable unless you experience a Qualifying Life Event (QLE). While you and your spouse will have your total household salary reduced by the amount of your combined elections, you will also probably receive that full amount in reimbursements.
When you prepare your Federal taxes during the next calendar year, you need to complete Form 2441 "Child and Dependent Care Expenses" (attached to Form 1040), and add the amount in excess of $5000 back into your income. However, if you have more than $5000 in dependent care expenses (effectively paid with after-tax dollars since you added it to your income), you may be able to use that additional amount to claim a dependent care tax credit on the Form 2441. Your excess contribution is not "lost" but can still be used to offset some dependent care expenses. We encourage you to contact your tax advisor if you need further guidance. Back to Top Who is a qualifying
dependent for a DCFSA?
A qualifying dependent
for the FSAFEDS DCFSA is your tax dependent:
To claim dependent care expenses, you must meet the following conditions:
Your child must have been under age 13 when care was provided and you must be able to claim the child as an exemption on your tax return. (For an exception to this rule, see "Child of Divorced or Separated Parents" in IRS Publication 503, Child and Dependent Care Expenses.) The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents. A dependent of any age (e.g., a parent) who is physically or mentally incapable of self-care also qualifies if he or she can be claimed as an exemption on your tax return (or could have been claimed, except for the fact that he or she had $3,050 or more of gross income). Back to Top Is there a limit for a
DCFSA election?
By law, the maximum
amount you may allot for a DCFSA is $5,000 per household
($2,500 if married filing separately). You could exceed the
$5,000 limit if both you and your spouse work for employers
offering an FSA and the combined total of the allotments you
each elect for a DCFSA goes beyond the applicable limit of
$5,000. So, it is important that you plan carefully.
The IRS allows an income tax credit of up to $6,000 of dependent care expenses if you have two or more dependents (up to $3,000 for one dependent). The amount of the credit is based on your adjusted gross income and applies only to your Federal income taxes. So, while the maximum allowed under a DCFSA is $5,000, you may be able to apply the incremental difference between the DCFSA maximum and the Child and Dependent Care Tax Credit depending on your tax situation. For more information about this tax credit, please see IRS Form 2441 and the accompanying instructions. Back to Top Are dependent care
expenses paid with a DCFSA tax deductible?
You are not permitted to
claim the same expenses on both your Federal income taxes and DCFSA,
although in certain situations you may be able to take
advantage of both the DCFSA and the Child and Dependent Care
Tax Credit. If you have two or more qualifying individuals as
dependents, the IRS allows you to apply up to $6,000 of
dependent care expenses to your taxes. The maximum allowable
under a DCFSA is $5,000, so you may apply the $1,000
incremental difference between the DCFSA maximum and the Child
and Dependent Care Tax Credit if you have two or more
dependents and your expenses exceed $5,000. The chart below
helps to illustrate:
Note: For the Child and Dependent Care Tax Credit, which is different than your DCFSA, you may use up to $3,000 of the expenses paid in a year for one qualifying individual, or $6,000 for two or more qualifying individuals. These dollar limits must be reduced by the amount of any dependent care benefits that you exclude from your income. Which is better, a DCFSA
or the Dependent Care Tax Credit?
It depends on your
particular tax situation. You may apply up to $3,000 of
expenses paid in a year for one qualifying individual, or
$6,000 for two or more qualifying individuals to your taxes
through the Dependent Care Tax Credit. If you have two or more
dependents and your household adjusted gross income is less
than $43,000, you might find the Federal tax credit to be more
beneficial. However, if your household adjusted gross income
exceeds $43,000, it is likely the DCFSA will provide greater
tax savings. There is a Dependent Care Tax Credit
Worksheet available online at www.FSAFEDS.com that can help you
determine which option is best for you. If the Federal tax
credit is a better option, you will need to file Form 2441 "Child and Dependent Care
Expenses" when you file your Federal Income Tax
return. The amount of your DCFSA election for the Benefit
Period will appear in box 10 on your W-2 form.
You may wish to consult a tax professional if you are unsure which option is more beneficial for your individual tax situation. Back to TopWhat should I know about
a DCFSA versus Child Care Tax Credits?
Depending upon your
particular tax situation, it may be more advantageous to you
to use the tax credit rather than a DCFSA exclusively. The
amount of the DCFSA exclusion is limited to $5,000 per tax
year ($2,500 for married individuals filing separate returns).
If the applicable limitation is exceeded, the excess is
included in income and taxable. There is a Dependent Care Tax Credit
Worksheet that can help you determine which option is
best for you.
The IRS allows an income tax credit of up to $6,000 of dependent care expenses if you have two or more dependents (up to $3,000 for one dependent). The amount of the credit is based on your adjusted gross income and applies only to your Federal taxes. So, while the maximum allowed under a DCFSA is $5,000, you may be able to apply the incremental difference between the DCFSA maximum and the Child and Dependent Care Tax Credit depending on your tax situation. For more information about this tax credit, please see IRS Form 2441 and the accompanying instructions. Please consult a tax professional if you are unsure of which option is more beneficial for your particular tax situation. Back to TopCan I have a Dependent Care (Day Care) FSA if I receive a child care subsidy from my agency?
Yes, but any combination of DCFSA contributions and child care subsidies cannot exceed $5,000 for the year.
Examples:
What expenses are
eligible for reimbursement with a DCFSA?
You can use the DCFSA to
pay eligible expenses for care of your dependent children
under age 13, or for a person of any age whom you claim as a
dependent on your federal income tax return and who is
mentally or physically incapable of caring for himself or
herself.
Examples of eligible services include:
Back to Top What expenses are NOT
eligible for reimbursement by a DCFSA?
Examples of ineligible
DCFSA expenses include:
*Expenses can only be reimbursed after they have occurred. When is my DCFSA account
available to me, and how do I know how much is available?
Like the health care
FSAs, a DCFSA is activated once your employment if verified with your employing agency or its payroll office.
However, unlike the health care accounts, the current balance in your DCFSA
account on the day your claim is processed is the maximum you
can be reimbursed at that time. If your bill for day care
exceeds what you have in your account, FSAFEDS will process
your claim and reimburse you the amount in your account on the
day of processing. Any eligible claim amount that exceeds the
balance in your DCFSA at the time your claim is processed is
pended until your next allotment is received at FSAFEDS. As
soon as your next allotment is received, the remaining amount
will automatically be released to you, assuming your next
allotment of funds is sufficient to cover the balance of your
original claim amount.
Example:
IMPORTANT NOTE: day care expenses cannot be reimbursed until services are actually provided. In other words, pre-paid day care expenses, or expenses paid in advance, are not eligible for reimbursement under a DCFSA until the services have been rendered. Refer to the Dependent Care (Day Care) Flexible Spending Account section for more information. You can update your EFT information at any time by visiting www.FSAFEDS.com and logging in to My Account Summary, or by completing the EFT Form and faxing it to FSAFEDS at 1-866-643-2245 (toll-free) or 1-502-267-2233. If you are a new or newly eligible employee enrolling outside of Open Season, you may still elect the full amounts for both HCFSA and DCFSA. There is no proration. Your allotment will be divided by the number of pay periods remaining in the calendar year. You may not transfer funds from one account to the other (e.g. from your HCFSA to your DCFSA or vice-versa) to cover unanticipated expenses, even if you have a balance in one of the accounts. Spouses may not transfer funds between each other’s accounts. Back to TopCan I use a Dependent Care (Day Care) FSA to pay for
a babysitter in my home rather than using a day care
center? * For more information, refer to Do I, or my spouse if married, have to earn income during the year to use a Dependent Care (Day Care) FSA (DCFSA)? I work at night and need an overnight babysitter. Is that an eligible child care expense? * For more information, refer to Do I, or my spouse if married, have to earn income during the year to use a Dependent Care (Day Care) FSA (DCFSA)? My under-age-13 child goes to day camp
during the summer. Is that qualified child care? * For more information, refer to Do I, or my spouse if married, have to earn income during the year to use a Dependent Care (Day Care) FSA (DCFSA)? My under-age-13 child goes to an
overnight camp during the summer. Is that qualified child
care? My under-age-13 child goes to private
school. Are tuition payments qualified child care? I pay my day care center the same amount
every single week. Do I have to submit a claim every week or
can I set it up to automatically receive reimbursement?
My child turns 13 in the middle of a
week. Can I submit a bill for the whole week’s child
care? I am thinking of having an au pair take
care of my child. There is a $2,500 up-front fee and I will be
paying $150 a week to the au pair. What, if any, of this
qualifies as an eligible expense? What information do I need from a
dependent care provider? If your provider does not have a SSN or TIN, you must submit a letter indicating that you have attempted to obtain a SSN or TIN from the provider and were unable to do so, as the provider does not have one or will not provide it to you. The letter must show the name and address of the provider and should be signed by you. Can I send a cancelled check as supporting documentation for my Dependent Care claim? |