Dependent Care Flexible Spending Account

In addition to the Health Care Flexible Spending Account, participants that qualify for the Federal Child and Dependent Care Tax Credit for income tax purposes also qualify for reimbursement through the Dependent Care Flexible Spending Account. There are two requirements for eligible child or dependent care expenses to qualify:

1. It is necessary for you and your spouse to work outside your home in order for you to be reimbursed.
   
   
2. The total amount of expenses to be reimbursed through the Dependent Care Account can not be greater than your income or your spouse’s income, whichever is lower.

The maximum yearly deposit amount is $5,000; or $2,500 for married individuals that file separately. This exceeds the Federal Tax Credit for one child.

Eligible Expenses Include:

• Dependent care center; provided they comply with state and local laws (applicable if more than six persons are being cared for in the facility).
  
  
• Services of other providers of care outside the home (i.e., neighbors, your parents).
  
  
• Services of a child or dependent care provider who comes to your home.
  
  
• Relatives who provide care services (except someone who can be claimed as a dependent or who is a child under the age of 19).
  
  
• Housekeeper and nurse’s fees, for services provided inside your home, are eligible to the extent they are attributable to dependent care expenses and not expenses of incidental household services.
  
  
• Food and incidental expenses may be eligible if part of dependent care charge.
  
  
• FICA and FUTA payroll taxes of the care provider.

Eligible Children or Other Dependents Include:

• Any child under age 13 who can be claimed as a dependent on your Income Tax Return.

• Your spouse or any dependent over 13 who may be physically or mentally unable to care for himself or herself.

• Anyone who is physically or mentally unable to care for himself or herself for whom you contribute more than half of their support.

Dependent Care Expenses that DO NOT Qualify for Reimbursement:

• Overnight stays at medical/recreational facilities or overnight camps.
  
  
• Food, transportation and incidental expenses (diapers, activities, registration fees, etc.) are not eligible if charged separately from dependent care expenses.
  
  
• Expenses paid to a housekeeper, maid, cook, etc. are not eligible except where incidental to dependent care.

Limitations: Dependent care expenses may not exceed the smaller of the following limits:

• The maximum allowed under the plan.

• $5,000 if you are married and filing as single or head of household; and, $2,500 if you are married and separate returns are filed.

• Your taxable compensation (after all compensation reduction elections). If you are married, your spouse’s actual or deemed earned income.

• The dependent must spend at least 8 hours a day in your household.

The Dependent Care Spending Account is not pre-funded; you will only receive reimbursement for dependent care expenses up to the amount contributed to date.  You cannot take the Federal Tax Credit if you use the Dependent Care Spending Account program.

How does this plan compare to the credit on my Form 1040?

Whether or not to participate in the Dependent Care Account (DCA) or to take the tax credit when you file your taxes depends on your income, filing status, number of dependents, and annual dependent care expenses.

For additional information, CLICK HERE  to view IRS Publication 503.