Summary of Benefits

Dependent Care (Day Care) Flexible Spending Account (DCFSA)

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.

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:

$5,000 for single individuals or married couples filing joint returns;
$2,500 for married couples filing separate returns,
the employee's earned income (if less than $5,000/$2,500) or
the spouse's earned income (if less than $5,000/$2,500).

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.

Who is a qualifying dependent for a DCFSA?

A qualifying dependent for the FSAFEDS DCFSA is your tax dependent:

who is under age 13, or
of any age (including, but not limited to, your parents and parents-in-laws), or your spouse who is mentally or physically incapable of caring for himself or herself.

To claim dependent care expenses, you must meet the following conditions:

You must have incurred the expenses in order for you and your spouse to work, look for work (as long as you found a job and have earned income), attend school full-time or your spouse was physically or mentally incapable of self-care.
The payments for care cannot be paid to someone you can claim as your dependent on your Federal income tax return or to your child who is under age 19. (However, payments can be made to a provider between ages 13-19 that you do not claim on your taxes as a dependent, or who does not live in your home.)
Your filing status must be single, qualifying widow(er) with a dependent child, married filing jointly, or married filing separately.
The care must have been provided for one or more qualifying persons identified on the form you use to claim the credit.
You (and, if you're married, your spouse) must maintain a home that you live in for more than half of the year with your qualifying child or dependent.

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).

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.

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:

MAXIMUM ALLOWED DEDUCTION
	DCFSA	Federal Tax Credit
One Dependent	$5,000	$3,000
Two or More Dependents	$5,000	$6,000

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.

What 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.

Can 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:

Marlene Smith is a Federal employee who has one child, age 3. She receives a $3,000 child care subsidy from her agency. She also elects a $2,000 DCFSA through her agency.

$3,000 + $2,000 = $5,000

Marlene is OK. She did not exceed the $5,000 limit.

Mary Johnson is a Federal employee, married to Rick who works for ABC Company. They have two children, ages 4 and 8. Mary receives an annual subsidy of $1,500 and has a $3,000 DCFSA through her agency. Rick receives an annual subsidy of $1,000 from his employer.

$1,500 + $3,000 + $1,000 = $5,500 - exceeding the $5,000 limit by $500

Mary and Rick must reconcile any additional taxes owed, on the $500 that exceeded the limit, when they file their annual tax return.

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:

Placement fees for a dependent care provider, such as an au pair (see the FAQ in this section about au pairs for more information)
Before and after-school care (other than tuition expenses)
Care of an incapacitated adult who lives with you at least eight hours a day
Childcare at a day camp, nursery school, or by a private sitter
Late pick-up fees
Expenses for a housekeeper whose duties include caring for an eligible dependent
Summer or holiday day camps, including registration fees
Activities in lieu of day care when the fees associated with the activity are incidental to, or cannot be separated from, the cost of care (swimming lessons, arts and crafts, music lessons, etc.)

What expenses are NOT eligible for reimbursement by a DCFSA?

Examples of ineligible DCFSA expenses include:

Education or tuition fees
Expenses for children age 13 and older
Late payment fees
Overnight camps
Payment for services not yet provided (*payment in advance)
Field trips, clothing and food
Transportation to and from the dependent care provider

*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:

Mysti Nelson’s bi-weekly DCFSA allotment is $400 and she pays her day care provider $500 every two weeks. At the time she submits her claim, Mysti has $400 in her account. FSAFEDS will process the claim and reimburse Mysti $400. When her next allotment is received, FSAFEDS will release the additional $100 to Mysti, without her having to complete an additional claim form.

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.

Can I use a Dependent Care (Day Care) FSA to pay for a babysitter in my home rather than using a day care center?
Yes. You can include expenses paid to a babysitter if the services are necessary in order for you and your spouse, if married, to work, look for work*, or for 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.

* 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?
Yes. As long as the services are necessary in order for you or your spouse, if married to work, look for work*, or for your spouse to attend school full-time they are eligible dependent care costs.

* 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?
Yes, if attendance at that camp allows you and your spouse to work, look for work*, or for 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.

* 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?
No. Overnight camps or day camps that include an overnight stay are not eligible for reimbursement. The IRS Publication 503 does not recognize this as a work-related expense.

My under-age-13 child goes to private school. Are tuition payments qualified child care?
No. School tuition is not child care. But before/after school care is a qualified expense. Your provider may be required to itemize the costs between tuition and before/after school 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?
You must submit a claim every time you wish to request reimbursement of an expense. There is no automated process. Many individuals file claims monthly to eliminate weekly claim submission. However, it truly depends on your specific needs and whether you can wait until the end of the month for reimbursement or if you need to receive funds weekly. Regardless of the amount on your claim you will only be reimbursed up to the amount in your account at that time.

My child turns 13 in the middle of a week. Can I submit a bill for the whole week’s child care?
No. You can only submit a bill for the portion of the week during which your child was under age 13.

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?
The up-front fee qualifies as an eligible child care expense if it is an expense you must pay in order to obtain care. However, you must only apply the expense proportionately over the duration of the agreement to employ the au pair. For example, for an annual agreement with an au pair who is paid weekly, 1/52nd of the placement fee would be reimbursable each week. The fee of $150 per week as well as other work related expenses may qualify as a child and dependent care expense, depending on your tax situation. Please refer to Publication 503, Child and Dependent Care Expenses for more information.

What information do I need from a dependent care provider?
Eligible childcare providers must provide you with their SSN or TIN. The caregiver must declare your payment as taxable income. If it is a childcare center providing care for more than six non-resident children, the provider must comply with state and local regulations.

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?
No, you must either have the provider sign the Affidavit on Section(s) 2 and/or 5 of the claim form or attach a copy of your bill or signed receipt in order to be reimbursed. Please make sure your bill or signed receipt includes the date(s) of service.