FSA flexible spending account

How a Dependent Care Flexible Spending Account Can Help Your Family

What is a Dependent Care Flexible Spending Account?

A Dependent Care Flexible Spending Account is a benefit that allows employees to set aside pre-tax dollars to help pay for dependent care. When you contribute to this type of account, you get the benefit of using pre-tax dollars as well as lowering your taxable income.

A Dependent Care FSA is often offered when your employer also has a traditional Healthcare FSA, but these two accounts are separate and have different rules from the IRS.

Dependent care accounts can be used for childcare for your children under the age of 13, as long as they are claimed as qualifying dependents. The account can also be used for care for a disabled spouse or a disabled dependent of any age.

What are Eligible Expenses for Dependent Care FSA accounts?

Sample Eligible Expenses

  • Daycare

  • Before and After School Care

  • Nursery (preschool) School Fees

  • Nanny Expenses

  • Elder Care

  • Summer Day Camp

Sample Ineligible Expenses

  • Tuition

  • Transportation

  • Activity fees/supplies

  • Field Trips

  • Overnight Camp

  • Babysitter (for reasons other than work)

  • Late Payment Fees

  • Child Support

Who Can Get a Dependent Care Flexible Spending Account?

To be eligible, you and your spouse (if married) must be employed, or your spouse must be a full-time student or looking for work. Childcare outside of these rules is not able to be funded with this account.

Remember that you can only enroll in a Dependent Care FSA at Open Enrollment, like your other benefits. Look back through your prior year’s expenses to get an idea of how much you should elect.

2018 dependent care limits

How Do I Get Reimbursed Using a Dependent Care Account?

Dependent Care Accounts require that you submit services for reimbursement – so you need to pay for them upfront. This is a bit different from many modern Healthcare FSAs that you can use like a debit card.

Dependent Care Accounts also function on an accrual basis. You can only get reimbursed from funds that are in the account at the time of your request (similar to an HSA).

What happens if I have funds left over at the end of the year?

The IRS has a “use-it-or-lose-it-rule”. This rule requires that all money put into a dependent care FSA must be used to reimburse qualified expenses during that plan year.  Funds left over at the end of the year are forfeited. To reduce the risk of losing money at the end of the year, please plan carefully when deciding on your election amount.  Some employers offer a run-out or grace-period to submit claims after the plan year has ended.

What Rules Apply to Dependent Care FSAs if You are Divorced?

If you are the custodial parent you are eligible to have a dependent care FSA account. If you’re not the custodial parent, you cannot be reimbursed from a dependent care FSA even if you claim your child as a dependent on your taxes.

Can I still claim the household and dependent care credit on my tax return?

Partially, you can claim costs outside of your elected dependent care amount. If you elect the maximum of $5,000 in dependent care funds, and you end up spending $6,000, that extra $1,000 is eligible. Please consult your tax advisor for the best way to handle your specific situation.

For questions about Dependent Care Flexible Spending Accounts please contact the Benefits Experts at Austin Benefits Group. For more supportive family benefits, check out our Top 8 Benefits for Families.

Cathy Siska COO

Cathy Siska
Chief Operating Officer