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.