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Dependent Care FSA

A dependent care FSA is a great way to pay dependent care expenses and lower your taxable income. Here's how it works:

  • You direct part of your before-tax pay into a special account to help pay work-related dependent care costs
  • You can use your account throughout the year to help pay for eligible expenses
  • Your expense must be for the purpose of allowing you and, if married, your spouse to be employed

Explore these topics to learn more:

Qualifying Dependents

A dependent care FSA helps reimburse you for the work-related cost of care for a qualifying dependent. A qualifying dependent is:

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

For additional information, refer to Publication 503 on the IRS website at www.irs.gov for more information.

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Tax Savings

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:

  • Income
  • Tax bracket or amount of income taxes you pay
  • Yearly dependent care expenses

For example, let's say your:

  • Income is $40,000 annually
  • Tax bracket is 15 percent, and
  • Estimated dependent care expenses are $5,000

Using the numbers in that example, a dependent care FSA offers an estimated yearly tax savings of $472.

  With FSA Without FSA FSA Savings
Annual Income $40,000 $40,000
Estimated Care Pretax Contributions $5,000 $0
Taxable Income $35,000 $40,000
Estimated Federal Withholding $4,713 $5,463
Estimated Social Security Tax $2,678 $3,060
Dependent Care Expenses $0 $5,000
Tax Credit for Dependent Care $0 $660
After-Tax Income $27,609 $472 $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.

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Your Contribution

The Internal Revenue Service limits the amount you can put into a dependent care FSA, up to:

  • $5,000 per year, if you are married and filing a joint return, or if you are a single parent
  • $2,500 per year, if you are married and filing separately

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.

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Getting Reimbursed

  • Pay your dependent care provider directly and get a receipt
  • Complete a dependent care reimbursement claim form
  • Attach the receipt or have the caregiver sign the form
  • Mail it or fax it to Aetna as instructed on the form
  • We will send you a check or deposit it into your bank account for your eligible expenses.

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.

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Your Dependent Care FSA and Tax Credits:

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.

  • Complete IRS Form 2441 when filing your income taxes for the year
  • Your employer will report all dependent care contributions in Section 10 of your W-2 Form(s).

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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