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/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 full- time students.
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 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 run-out period will be forfeited to the employer.
Eligible Dependent Care Expenses
Ineligible Dependent Care Expenses
Reminder: Income tax credits are also available for childcare expenses. To determine whether a flexible spending account or a tax credit is a better choice, employees may wish to consult a financial advisor.