If I have someone come into my home to take care of my children instead of using a day care facility, do these expenses qualify for a dependent care FSA?
Yes. If the services are necessary in order for you (or, if you are married, you and your spouse) to work, you can include payments made to a babysitter or companion in or outside your home. Expenses will also qualify for a dependent care FSA if you work and your spouse is a full-time student or is mentally or physically incapable of self-care. However, you cannot be reimbursed for payments made to your spouse, the parent of your qualifying child, your child under age 19 (even if not your dependent) or a person whom you claim as a dependent on your tax return.

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How much can I contribute to a dependent care FSA?
If you are married and file your tax return jointly with your spouse, then you and your spouse are allowed to contribute up to the lesser of $5000 or the earned income of the lower-paid spouse. (For example, if one spouse had earned income of $4,500 for the year and the other spouse's earned income was $25,000, they may only contribute up to $4,500 to the dependent care FSA.)

If you are married and file separately, you and your spouse are each allowed to contribute up to the lesser of $2,500 or your respective earned incomes.

If you file as single or as head of household, you can make annual contributions up to the lesser of $5,000 or the amount of your earned income.

Note: Only the custodial parent may participate in a dependent care FSA. See question #3, below, for more information.

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I am a divorced parent. May I establish a dependent care FSA for child care expenses even if my ex-spouse has already done so?
Yes, if you are the custodial parent. This is true even if the non-custodial parent claims the dependency exemption for that child. In general, the custodial parent is the parent with whom the child lives for more than 50% of the year. The non-custodial parent may not participate in a dependent care FSA because the IRS takes the position that dependent care expenses are not necessary for the non-custodial parent to be gainfully employed.

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Can I use the dependent care FSA for elder care? What if my elderly parent remains in his/her own home or a nursing hone but is still my dependent?
You can use the dependent care FSA for elder care expenses so that you (or if you are married, you and your spouse) can work. To claim the expenses:

• Generally, your parent must qualify as your dependent under the tax rules. Please consult IRS Publication 503 at www.irs.gov for specifics.
• Your parent must be physically or mentally incapable of self-care.
• Your parent must reside in your home for at least half of the year.
• Your parent must usually spend at least eight hours a day in your home.

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