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.
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{ 11 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)
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.