The Dependent Care FSA allows you to pay
for qualifying dependent care expenses with tax-free dollars
for eligible reimbursable dependent care expenses Qualifying
dependent care expenses are those expenses that you incur
in order for you and your spouse to work or look for work
during your period of coverage.
Dependent care expenses are limited to:
• Care for dependent children under age 13, who have
the same principal place of abode as you and who do not provide
over half of their own support, or
• A spouse or a dependent who is physically or mentally
incapable of caring for himself or herself, for whom the
Participant provides over one-half of the individual's support
for year, and whose gross income is less than the federal
tax exemption amount (currently $3,200).
Note:
There is a special rule for children of divorced parents.
Dependent care expenses are limited to those of the parent
with whom the child resides with the longest during the year.
You’ll need to get the taxpayer identification number
from the facility providing care for your dependent. If
an individual provides care for your dependent, a Social
Security number is acceptable. The individual must report
the income in order for you to get the tax advantage of
using the dependent care reimbursement account.
Ineligible dependent care expenses include:
-- Expenses claimed as deductions or credits on your federal
income tax return
-- Expenses for food, clothes, or transportation
-- Expenses for the education of a dependent in the first
or higher grade level
-- Expenses for the care of your physically or mentally
incapacitated spouse or dependent who doesn’t spend
at least 8 hours each day in your home
-- Expenses for care provided by a family member if that
person is claimed as a dependent on your income tax form
or under age 19
You may choose any annual Dependent Care Reimbursement
amount you desire, subject to the following minimum annual
amounts:
Payroll Schedule |
Annual Minimum |
Minimum Per Pay Period |
12-Month |
$240 |
$10.00 |
10-Month |
$240 |
$12.00 |
The annual maximum amount cannot exceed the maximum Dependent
Care Reimbursement amount specified in Section 129 of the
Internal Revenue Code. The maximum annual amount is currently
$5,000 per Plan Year if you - (a) are married and file
a joint return; (b) are married but your spouse maintains
a separate residence for the last 6 months of the calendar
year, you file a separate tax return, and you furnish more
than one-half the cost of maintaining those Dependents
for whom you are eligible to receive tax-free reimbursements
under the Dependent Care FSA; or (c) are single.
If you are married and reside together, but file a separate
federal income tax return, the maximum Dependent Care Reimbursement
that you may elect is $2,500. In addition, the amount of
reimbursement that you receive cannot exceed the lesser
of the earned income (as defined in Code Section 32) of
you or your spouse. For purposes of (a) above, your spouse
will be deemed to have Earned Income of $250 ($500 if you
have two or more Qualifying Individuals), for each month
in which your spouse is (i) physically or mentally incapable
of caring for himself or herself, or (ii) a full-time student
(as defined by Code Section 21).
Eligible dependent care expenses must be incurred during
the Plan Year and while you are a participant. You may
not be reimbursed for any expenses arising before the Dependent
Care FSA becomes effective or for any expenses incurred
after the close of the Plan Year or after a separation
from employment.
If you do not incur an amount of eligible dependent care
expenses that match the pre-tax dollars set aside and allocated
to your account, the allocated amount is forfeited.
Example of Tax Savings with Flexible Spending Accounts
(FSA):
| |
Without FSA |
With FSA |
| Gross Monthly Pay |
$2,500 |
$2,500 |
| Pre-Tax Health Care FSA |
-0- |
$50 |
| Pre-Tax Dependent Care FSA |
-0 |
$60 |
| Taxable Income |
$2,500 |
$2,390 |
| Withholdings @22.65% (Income Tax & FICA) |
($566) |
($541) |
| After-Tax Health Care Expenses |
($50) |
-0- |
| After-Tax Dependent Care Expenses |
($60) |
-0- |
| Net Annual Salary |
$1,823 |
$1,849 |
| Monthly Savings of $26 |
|
|
|
