A dependent care FSA is a great way to pay dependent care expenses and lower your taxable income. Here's how it works:
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A dependent care FSA helps reimburse you for the work-related cost of care for a qualifying dependent. A qualifying dependent is:
For additional information, refer to Publication 503 on the IRS website at www.irs.gov for more information.back to top
A dependent care FSA offers a way to better manage dependent care expenses and gain real tax savings. Your actual savings will depend on several factors, including your:
For example, let's say your:
Using the numbers in that example, a dependent care FSA offers an estimated yearly tax savings of $472.
This example should not be taken as tax advice. See a tax advisor to seek the best advice for your situation. To see how much you may save, check out the FSA Savings Calculator.back to top
The Internal Revenue Service limits the amount you can put into a dependent care FSA, up to:
Estimate what your daycare expenses will be for the year, and allocate enough from your pay, up to the allowable contribution limit, to cover them.
Just remember this: FSA dollars are "use-it-or-lose-it" funds. Account balances cannot be carried over from year to year. If you have any unused funds at the end of the plan year, or at the end of any applicable grace period, those funds will be forfeited. That's an IRS requirement. So estimate what you want to direct to your FSA carefully.back to top
Under IRS guidelines, you can only be reimbursed for dependent care that has already taken place. Also, you can only be reimbursed for the amount you have already contributed to your dependent care FSA. Unlike the health care FSA, the full amount of your dependent care election is not available January 1.back to top
You can use both a dependent care FSA and claim the Child and Dependent Care Credit when your file your income taxes, but you cannot claim the same expenses for both. If you plan to use both, the IRS requires that you subtract the amount you have directed into a spending account from the expenses you use to calculate the tax credit.
For more information, visit www.irs.gov.
Please refer to your employer's Summary Plan Description to determine if this is an available benefit under your employer's plan. In case of a conflict between your plan documents and the information in this website, the plan documents will govern.
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