Dependent Care FSAs

What is a Dependent Care FSA?

The Dependent Care FSA is a vehicle through which employees can accumulate pre-tax funds to reimburse for childcare expenses or day care expenses for a disabled or elderly/disabled dependent while they are employed. If married, the employee generally will not be able to receive benefits unless their spouse is also employed, a full-time student, or disabled.

How much can employees contribute to a Dependent Care FSA?

Under current regulations, the IRS limits the maximum annual amount you can deposit in your Dependent Care account to $5,000, or $2,500 if you are married and filing separately. The IRS imposes additional restrictions based on marital status, tax-filing status, and spousal income and work status. See your tax advisor for details. Healthcare reform legislation did not specifically address changes to Dependent Care FSAs.

Are Dependent Care FSAs subject to the same "use it or lose it" rules as Healthcare FSAs?

Yes. FSA plans are subject to "use it or lose it" rules. This rule requires employees to forfeit any money that is left in their account at the end of the plan year. The unused portion of a participant's pre-tax accounts may not be paid to the participant in cash or be used for any other benefit.

What types of healthcare expenses can be covered with a Dependent Care FSA?

Dependent care expenses eligible for reimbursement include services provided for:

• A tax dependent under age 13
• Any other tax dependent, such as an elderly parent, who is physically or mentally incapable of self-care and has the same principal residence as the employee participant
• A spouse who is physically or mentally incapable of self-care and has the same principal residence as the employee participant

Ineligible expenses include:

• The cost of schooling
• Dependent care expenses paid to: one of your dependents, your spouse, or one of your children who is under the age of 19