For the first time ever, a company that my wife or I worked for offered flexible spending accounts (FSA). We were given two accounts to enroll in: Dependent Day Care FSA nad Health Care FSA. I will be looking into each of these in more detail. Today, let’s focus on:
Dependent Day Care Flexible Spending Account
In our society where dual income families are the norm, day care is almost a must for any young families. I’ve heard that people could spend $1000 or more a month on day care, so if we can use pre-tax dollars to pay for this, it would help the family budget significantly.
Another important point to note is that while the most common use of this type of FSA is for child care, elderly care is also considered under this plan. Adult day care and even nursing homes for parents that don’t live with you are all eligible expenses.
Check list for Determining If Your Dependent Care Expenses Qualify
The government has set some rules for eligibility in order to prevent abuse. Check below to make sure all the criteria are met before you apply.
- Both you and your spouse must have earned income, unless the person without income is a full-time student or is incapable (physcially or mentally) of self-care
- The day care center must enable you two to work, look for a job., or attend school full-time.
- You and your spouse must be paying at least half household expenses that you two reside in.
- The reimbursed amount must be lower than either you or your spouse’s earned income
- You cannot be using the funds to pay for care by your dependent, or for that matter anyone under the age of 19
- The day care center you choose must be licensed if they care for more than 6 children
A Couple Look Out Regarding Day Care FSAs
Even though the maximum you can contribute to this type of FSA is $5,000, your employer has the option of setting a lower maximum contribution so remember to find out. Also be careful when filling out the forms because some forms asks you for the full annual contribution amount while others asks for the per paycheck deduction amount.
Remember that with FSAs, you have to estimate how much you will need for the whole year in advance and you lose what you don’t use. Therefore, careful planning is crucial or else you will end up losing money instead of benefiting from this plan.
Last year’s records are a great place to start when planning for the upcoming year’s expenses. If your expenses largely revolve around a day care facility, speak to them about the upcoming year and whether there will be fee changes.
Related Posts
- Health Care Flexible Spending Account (FSA)
- Flexible Savings Account vs. Health Savings Account
- Sandwich Generation are Eligible for Tax Relief for Supporting Parents
- 7 Questions to Ask About HSAs and Other Ways to Pay for Medical Expenses
- Good Health Can Save You Money
{ 57 comments… read them below or add one }
I no longer have children in daycare but this is an excellent article. I was unaware that daycare FSA’s existed. I’ll be sending this along to families I know who do have children in daycare. Thanks.
Great and timely article. I have one quibble though, as I recently looked into this. According to the IRS documents, expenses for caregivers under 19 are eligible, provided they are not related to you. This is important for people who may use teenage after-school babysitters.
is there a list of day care centers that accept this flexible daycare account. I have twins, I was so excited that I took out the max of $5000. the way my company does it, is they give you a card, it look live a visa card, but the provider has to accept it. I have yet to find a center and I have called all in malden, ma
margaret: If it’s those debit visa cards, they are supposed to accept it as long as they accept debit cards. Check to see if that card has a credit option, which opens even more ways to pay.
I would actually check with your plan provider and see if there is a way to also manually submit your expenses. That way, as long as you have proof of your expenses, you can get a refund.
My daycare provider does not accept cards. So I get a receipt and fill out a claim form. The account provider should provide you with the reimbursement form. I get mine from my company’s web site.
I signed up in the beginning of the year so that my wife can look for a job and child can go to day care part-time. Wife was unable to find job and I would like to stop sending child to day care since wife is at home more. Can I change my enrollment in the mid-year due to this reason?
It all depends on your employer so talk to your HR (or plan administrator). Usually, they have a specific time that you can make changes to your FSA plans. (It’s probably once a year but it may be more frequent for your company)
HELP!! I am in a FSA for dependent care, and have not used the daycare for a month. My company is telling me that I cannot get that money back, and I even have to keep contributing out of my own paycheck to the FSA for three more months. Is there any way I can get that money back? It feels like the compay is stealing from me !!!
We take out $5000 dependent day care FSA. This year my husband’s employer is saying that they’re reducing it to $1800. How can they do this and more importantly why can they do this? Can someone please explain? Thanks.
In general, the federal cap is at $5,000. Also, both you and your husband are supposed to have income in order to take advantage of dependent day care FSAs. Have you asked your husband’s employer why they are reducing this? For example, if one spouse (in that case, you) earns less than $5,000 then the benefit is limited to whatever that spouse earned.
Does this apply? If not, the easiest way to get an accurate explanation is to just ask your husband’s employer.
I’m a stay at home mom who is about to be put on bedrest for the last few months of pregnany. Can we use this FSA account to hire a nanny for our 4 year old, since I will not longer be able to care for him and my husband works full time and travels with his job. Please advise.
How about putting your 4 year old in preschool. Your child would benefit from the social interaction along with exposure to early academic curriculum. Check with your local schools to see if they have a free preschool program. It’s free through most public school systems.
I have sign up for a $5000 FSA for Dependent Care in 2010. My husband lost his job in May so we decided we wouldn’t use all the $5000 in after school care/day camp throughout the 2010 year. With no advanced clarifications form the claim processing about the consequences of the procedure or any written documents available to the employees, my company accepted my cancellation of the FSA contribution as of June 1st. I had $2667 in deposits into my FSA dependent care account until May 31st but now my company says that I can’t claim any expenses incurred after May 31st. That means my company is keeping $1850 from my FSA deposits that I was hoping to use to pay day camp thru the summer vacation from school. My husband could/can not look for work this summer because he has to take care of two school age children… otherwise we will incurre in new expenses/not covered expenses in child care. Please advise….
As far as I know, pretty much all plans through employers are deducted from your paycheck. So for example, if you elected to contribute $5,000 a year and have 26 paychecks a year, then they deduct roughly $192 per paycheck from you to make it up. If you husband’s employment was until May, you technically only paid 5/12 out of the whole $5,000 (or roughly $2083). During May, you could have used up all $5,000 and got some free money, but in a way you would have been taking advantage of the system.
Since your husband lost work, I think COBRA lets you continue your FSA by making contributions though, so you might want to look there. If you don’t have the documents with you anymore, you may want to try calling them to see if you can still contribute.
My question is about the $5,000/yr maximum expense limit. My wife and I both work, file our taxes married jointly, and our current day care expenses is well over $5000 a year. Can my wife and I each contribute $5,000 pre-tax into our own separate DCA accounts and use the $10,000 total amount for our day care expenses? Or is the $5,000 cap per family?
You and your wife can both elect to have money deducted from your paycheck, but at tax time, all expenses above $5,000 will be taxed so in reality, the limit is $5,000 for the whole family.
I’m in the same boat, with daycare for 2 kids well exceeding the $5,000 pre-tax limit. I will vote for the politician who ups that to $10,000.
I don’t quite understand this comment. Expenses aren’t taxed….net income is (after deducting allowable expenses). So I don’t understand what the comment “all expenses above $5,000 will be taxed” means. Can you please explain this a little further? Thanks.
I am starting a new job in September and they offer an FSA for child care. My son was in a licensed daycare for 3 months in the begining of 2010 but he has been at home with my husband (husband now works from home) since then. Can I contribute to my FSA from September til December 31, 2010 and use that money for our previous daycare expenses in the begining of 2010??
JESSICA, dont’ fall in the trap. You can’t use the money to pay for the services you have receive before you enroll in the program. The timing is exact. For example: If you contributed September 1st, 2010 to December 31st, 2010, you have to spend that money between September 2010 and December 2010. The program won’t cover any expenses before or after that period. PERIOD.
How can I get my FSA money (for daycare) back?
My company had a plan which ended 31st of March, 2010. The new plan starts April 1st, 2010. Should the FSA managing company be responsible for warning their clients for the expiration of 90 days period? Both FSA managing company and my company HR now said the money I put in my previous plan(Jan – March of 2010) can not be claimed. I am sitting here helplessly with my few thousands of dollars.
Can anyone have any idea what should I do next?
This is my situation. I’ve been contributing to my FSA Child Care throughout 2010. But my son hasn’t attended daycare since my wife has been unemployed since Nov 2009, and we decided to keep him home until she lands a job. That hasn’t happened yet, and frankly, I’m not betting on it. So, what happens to my contributions? Should I put him in daycare and use up the money? But then technically we don’t even qualify if she doesn’t work, right? Is there a way to get it back?
If you don’t use the money you loose it. IRS rule on this issue. Just happenned to me. Lost it. All of it. Look for advise from your HR people.
Hey
Since your wife lost her job, its consider a qualifying event, and you are able to cancel your contribuations. Just rememeber, once you cancel you will not be able to get that money, (unless you have daycare cost your trying to be reimbursted, prior to or up to the date you cancel your plan.)
That’s what I was told by my HR too. I had given up. But luckily, my wife started working again. And it looks like my kids will be in daycare just long enough to use up our 2010 FSA fund.
ASAP
OK, My husband lost his job at the beginning of the year and I will not be able to retrieve my entire $5000 from FSA (Dependant Care). I will never contribute to a FSA again because this is absolutely unfair. I think of course I should pay the taxes on the money but the GOV’t should not keep the entire amount. So many people are out of work and are probably in the same situation. I sure they will give it to the banks for another round of bonuses
Just an idea why not have the out of work spouse sign up for a class in school and then put the child in daycare to use up the monies. Just an idea.
I am planning to enroll in an FSA during open enrollment in October. I am going to put $5,000 in, as I pay about $20,000 per year for child care. Am I still able to claim child care on my federal tax return? And if so, the whole amount, or just the amount over the $5,000?
I want to know the answer to this as well. This year i have a full year of daycare and will go over my $5000. I was told by a non tax person i could claim anything over the $5000 but want to confirm with an expert just not sure who to contact.
Hi,
I am switching employers in October and I accidentally elected the entire $5000 for the rest of the year thinking it would be pro-rated. So I have already used and claimed $2500 with my existing employer and now my new employer will deduct $5000 of which I can only avail $2500 (last 3 month daycare expense). Will I lose the remaining $2500 or does that now show as income since its more than the IRS allowed $5000 cap?
Thanks.
You need to get this changed because having more than $5000 is not allowed. I would contact the HR department (or the person who handles your account) to see what can be done.
I reached out to them and they have denied my appeal. What other options do I have at the end of the year when time comes to file taxes?
I reached out to them and they have denied my appeal. What other options do I have at the end of the year when time comes to file taxes?
I have a similar case. My current employer removed 5,000 in the second half of 2009 although I claimed 5k already for the first half of 2009.
What/where are the rules/legal infringement/liability for nominating the amount to be removed between the employee and employer?
thanks
I was terminated in May, 2010. Enrolled in the flexible spending for dependent care and they have deducted out of my check approximately $1,999.98. I went to file a claim to get reimbursed for the funds deducted and was informed I only had 60 days to submit these claims. I did not receive any notice from the employer about this. Do I have any rights to dispute? If so can you point me in the right direction.
Did you ever get a resolution on this? I just found myself in the same situation.
Somewhat similar situation but in my case I continued the FSA with a new employer for the balance of the money. Now the new employer says expense was incurred prior to joining and hence cannot be reimbursed. Any advise?
What kind of question I should ask my child’s school whether or not they accepts fsa kids. He been going to this school almost 6 months now.
Thanks
Is this school a “school” that has a curriculum/charges tuition or is it a “child care” center? If the former, the tuition expenses are not eligible. You can however claim for “after school” day care.
I enrolled in dependent care fsa for 2010 ($2500), not realizing that my wife needs to earn income for us to be reimbursed. She works as a teacher, but is currently on a leave of absence to take care of our one year old child. Is there anything I can do to recoup the $2500, or do i have to forfeit the money?
2009 I contributed $5,000 to the FSA and spent more than $10,000 on my daughter’s daycare (paid check to daycare). But unfortunately fogot to file the reimbursement form with the copies of daycare cost receipts by Dec. 31, 2009. That means I lost all $5,000?
You had time till March 31, 2010.
That $5000 cap hasn’t been adjusted for cost of living in decades. The wife and I have two kids and daycare exceeds $20K/year. We really can’t afford that and neither can we afford a single income. Since the cap is per household, would it be best to get divorced, (ex)-wife live at ‘apt B’ and I live at ‘apt A’ so we could both make a $5K claim for each child? Or would it be best to have the wife open up a daycare center at home. I pay her the $5K I can withhold and then at tax time claim a major loss with the failing ‘daycare’ business? Just need to hold our breath for two years or so until the oldest is in school.
My wife and I separated this April. I have agreed to pay all daycare and medical expenses for our 3 year-old daughter. We have joint legal custody but my wife is the custodial parent and my daighter lives with her over 60% of the time. I read that the dependant has to live with you in order for you to be eligible to use the FSA. Is this true in all cases or are there special circumstances? I will be paying my daughters daycare expenses next year and it sucks if I cannot use an FSA anymore. I really liked getting the reimbursements back since they almost seemed like bonuses “(Out of sight-Out of mind)”.
Nevermind. Called the IRS for the answer. Can’t use the FSA next year and this year, I still have to file a Joint Married tax return with the Ex-Wife since I did the entire $5000.00. Sometimes I wish I could know just a little bit of what the future holds.
The cost of day care for my child far exceeds the $5,000 limit on the DCFSA. Can I claim the $3,000 tax credit for the costs that go above and beyond the $5,000 from the FSA?
You have to pick a credit either you take the 3000 child tax credit or you do Flex spending not both. When I signed up for FSA they had a chart with a breakdown based on your income about when you should use the FSA versus the dependent care credit.
My infant grandson is in daycare. His parents aren’t happy with the daycare and would prefer that I be his nanny in their home. Can my grandson’s mother’s FSA be used to pay me to care for my grandson if they remove him from the daycare center?
I’m not a tax professional so you should discuss this with one but as I understand the current rules, money in the FSA can be paid to you as long as you aren’t claimed as a dependent on your children’s tax returns and your care is going to allow them to work (or look for work). You should also make sure that you report all income as it’s technically income so depending on your situation, it might not really be much of a benefit financially.
My situation is as follow. I have started a new consulting business, so no income yet. Of course, I do want to make money and generate income in 2012 but no way to predict how this will all pen out. Does DCFSA penalize startup owners? I red it’s available for people looking full-time for a job, but what about people actually trying to create a living for themselves/starting a new business? And then, it said that you have to earn at least $5000/yr in order to claim DCFSA… so how would you be able to do this while looking 100% for a job (or developing a new venture)? Please help, I am confused!
I had enrolled in Daycare FSA last year (2011) for plan year from July 2011 to Jun 2012. But my wife could not get any income last year hence not going to file tax. However she started her work from Jan 1, 2012.
What would be my case:
1. IRS says that we need to file return jointly, but not possible in my case. How to file tax with informing IRS about my true concern?
2. What is tax liability on me? My W2 show $2500 as a FSA contribution for this calendar year.
3. Should I claim amount from FSA deposit for my kid’s day care expenses?
4. If yes, Can I claim for this year (2011)?
5. My wife is working this year and plan year is valid till Jun 2012. Can I claim all ($5000) amount this year if I am not eligible to claim last year (2011).
I lost my job on Feb 10, 2012 and have $540 in flex spending/daycare expense. The year was to run from June 1, 2011 thru May 31, 2012. I have claims denied from Feb 6-12 and Feb 13-19 yet money was contributed on Feb 17. What can I do?
On 2010, I enrolled the FSA account for $1500. However I was on owcp, so my employer couldn’t deduct any from my paycheck. I have $0 balance on all my paychecks. I called the FSA during the end of 2010. They said I could get any service because that is $0 amount on my account. Then, recently my employer are asking me to pay back $1500.00 out of my own pocket. The question is “Why do I have to pay $1500 to them, and instead I could claim this money back.
I signed up for Dependent Care FSA without knowing my wife had to work too. She is a stay-at home mom, but we enrolled our son in pre-school for the socialization, the kindergarden prep and to give her a little time off.
Is there any way to cancel the FSA, transfer it to my medical one or to get my money back?
I contributed $5,000 for the dependent care expense. I have not got any letter to remind the claim period from my employer.
In April, 2012 while I am preparing a tax return, I realized that I need to claim it by Dec. 31st, 2011.
Although I appealed to HR, it was denied. I have the second chance (and the last ) to appeal in writing. Any of you have advice how to write a reasonable appeal letter? Otherwise, I am going to lose all my money, which is essential for my kids.
I’m not sure there is a way, because it’s written pretty clearly in the IRS code that you forfeit unused contributions. You should definitely try to get the money back, but as I understand the rules, your employer or the company that handles the FSA account doesn’t have the authority to give you back the money.
The only way to get it back is if you are a qualified reservist, which only might apply if you were in military service during last year. If this is remotely applicable, I would search for The HEART Act (Public Law No. 110-245).