Dependent Care Flexible Spending Account
A Dependent Care Flexible Spending Account can be used to pay for eligible daycare expenses for children age 12 and under or for adult daycare expenses for a disabled spouse or disabled dependent. The maximum tax year deduction is $5000 (or $2500 if married and filing separately) per household.
The primary purpose of Dependent Care expenses, as defined by IRC § 129, must be for "custodial care" and allow the employee and their spouse, if married, to be gainfully employed, looking for work or be a full time student.
How does it work?
Employees who want to participate in the Dependent Care Flexible Spending Account must make an annual election by enrolling in the plan each year. The annual election is divided by the number of payroll cycles during the plan year to determine a per-pay period amount. This amount is reduced from the employee’s income prior to taxes. When dependent care expenses are incurred, employees will submit a completed claim form along with appropriate supporting documentation for reimbursement. Employees cannot be reimbursed more than the balance in their account. Claims will be processed within 3-5 business days. Participants will be issued a check or, if elected, their reimbursement will be deposited into their bank account.
At the end of the plan year, employees will have a 90-day run-out period to request reimbursement only for dependent care expenses incurred during the plan year. Any funds remaining in the account at the end of the 90-day run-out period will be forfeited to the employer.
Ineligible Dependent Care Expenses
- Payments to a spouse or parent of a qualified individual
- Educational Fees/Tuition
- Overnight camps
- Food, clothing
- Care not related to work
- Transportation expenses provided by parents
Eligible Dependent Care Expenses
- Before and after school care for children under the age of 13
- Care provided in your home (provider cannot be an IRS tax dependent or a dependent under the age of 19)
- Home or daycare for eligible disabled IRS tax dependents (must spend at least eight hours per day in your home)
- Licensed day-care providers
- Registration Fees (Provided the qualified dependent actually receives the care)
- Summer day camps for children under the age of 13 (even if overall theme of camp is entertainment or educational in nature)
Reminder: Income tax credits are also available for childcare expenses. To determine whether a flexible spending account or tax credit is a better choice, an employee may want to consult a financial advisor.
