Can You Get Child Care Expenses Back at Tax Time
Dependent Care FSA FAQs Alicia Main 2021-08-23T13:04:06-04:00
What is a Dependent Care FSA?
Dependent Care Flexible Spending Accounts (FSAs) — also known as Dependent Care Assistance Programs (DCAP) — allow you to use pre-tax dollars to pay for qualified dependent day care expenses to enable you to work. Since FSA contributions are pre-tax, you save money by not paying taxes on your contributions.
There are a lot of financial advantages to leveraging a Dependent Care FSA if you know what the account can do. To help with that, we've answered many common questions related to Dependent Care FSA eligible expenses, contributions, tax information, and more below.
Dependent Care Flexible Spending Account Basics
What is the difference between a Health Care FSA and Dependent Care FSA?
Even with the best health plan, you are likely to have out-of-pocket expenses each year. If you have children and have to pay for child care, a dependent care account can help stretch your hard-earned dollars. There are two types of flexible spending accounts:
- A Health Care FSA can cover medical, dental or vision expenses that you would otherwise pay for out of pocket. Common qualified expenses that a health care FSA will usually cover include the deductible, coinsurance or copayment amounts for your health plan, eye glasses or contact lenses, dental work and orthodontia, medical equipment, hearing aids and chiropractic care. Over-the-counter drugs, such as cold and allergy medicines, pain relievers, and antacids, can also be reimbursed through an FSA. Your employer may limit what expenses your plan reimburses; please contact your Human Resources office for more information. For a list of eligible expenses please, see Qualified Medical Expenses.
- A Dependent Care FSA— also known as a Dependent Care Assistance Program (DCAP) — covers employment-related expenses for child care. Qualified expenses must be for services that allow for you to be able to go to work. Typical expenses under this account include charges for day care, nursery school and elder care (though not if it is for medical care) for your legal tax dependents. For a complete list of eligible expenses, please see Qualified Dependent Care Assistance Program Expenses.
What are the benefits of a Dependent Care FSA?
Your biggest advantage is the tax savings. Every dollar you set aside in your account reduces how much you pay in income taxes. Plus, you can be reimbursed for qualified expenses that you are already paying for!
How does a Dependent Care FSA work?
- Funding. You, the employee, typically contribute a pre-determined amount to your account. In some cases, your employer may also contribute to employee FSAs. (Please contact your Human Resources office for a copy of your employer's contribution schedule.)
- Accessing Funds. When you have an eligible dependent care expense, pay out-of-pocket and request reimbursement online. Remember to always keep your receipts.
- Requesting Reimbursement/Substantiating Purchases. It's quick and easy to request reimbursement for eligible expenses paid using personal funds. Our documentation upload features online and on the mobile app will save you time and make your life easier.
- Mobile App Upload – Take a photo with your phone's camera and the image is submitted in seconds. Visit the myCYC page to learn more and get the app.
- Online Upload – Log in to your online account, then browse and upload scanned images directly to your claim. No need for faxing or mailing, and the image is saved with your claim as a record of submission.
- Recurring dependent care claims – Complete our eCertify process. The first claim is submitted manually to establish and substantiate both the expense and the provider in our system. Recurring payments in the same amount at the same provider will be automatically substantiated with no additional documentation required.
- Information necessary to file a dependent care claim includes:
• the dependent care provider's name and address
• provider signature
• service start and end dates
• dependent name and relationship to employee
• description of service
• amount requested
Please remember that credit card receipts, non-itemized cash register receipts and cancelled checks are not acceptable forms of documentation.
- Claims Processing. We will promptly process your request and reimburse you either by check or direct deposit if you sign up for that feature. Please note that you will receive your money sooner if you use direct deposit.
- Account Management. Log in to your online account regularly to check your account balance and access health education tools.
Dependent Care FSA Eligible Expenses
What types of expenses are eligible for reimbursement with a Dependent Care FSA?
Dependent Care Account funds cover care costs for your eligible dependents to enable you to work.
- Before school or after school care (other than tuition)
- Qualifying custodial care for dependent adults
- Licensed day care centers
- Nursery schools or pre-schools
- Placement fees for a dependent care provider, such as an au pair
- Child care at a day camp, nursery school, or by a private sitter
- Late pick-up fees
- Summer or holiday day camps
Again, these expenses must be work-related to qualify.
What types of expenses are not eligible for reimbursement with a Dependent Care FSA?
These items are not eligible for tax-free purchase with Dependent Care Account funds.
- Expenses for non-disabled children 13 and older
- Educational expenses including kindergarten or private school tuition fees
- Amounts paid for food, clothing, sports lessons, field trips, and entertainment
- Overnight camp expenses
- Registration fees
- Transportation expenses not charged by your provider for the purpose of getting to and/or from the site of care
- Late payment fees
- Payment for services not yet provided (payment in advance)
- Medical care
What happens if I use the account for a non-eligible expense?
If you file a manual request for reimbursement of a non-eligible expense, the request will be denied.
Contributions and Tax Information
How much can I contribute to my FSA?
For Dependent Care FSAs, you may contribute up to $5,000 per year if you are married and filing a joint return, or if you are a single parent. If you are married and filing separately, you may contribute up to $2,500 per year per parent.
Your employer may elect a lower contribution limit. Please see your plan documents or check with your Human Resources office for the specifics of your plan. The limit may be adjusted annually to account for inflation increases.
How does participating in the Dependent Care account differ from using other tax credits relating to dependents?
Reimbursements under the dependent care account must be for employment-related expenses, and IRS regulation Section 129 Dependent Care Assistance Programs regulates what expenses may be reimbursed. Employment-related means an expense for dependent care that allows you and your spouse, if applicable, to be gainfully employed.
The Dependent Tax Credit is an alternative to using a Dependent Care account and is a credit against tax liability. IRS Publication 503 Child and Dependent Care Expenses contains detailed information for determining whether a taxpayer may claim the Dependent Care Credit. For some employees, the Dependent Care Credit may be more advantageous than participating in the Dependent Care FSA, and care should be used in determining which method to select.
What happens if I do not claim all the money in my account?
Depending on your plan design, your plan may allow rollover of a portion of unused funds (for 2020 and 2021 plan years), a grace period during which you may continue to incur claims, or you may forfeit funds that are not claimed during the plan year. Contact your Human Resources department to see your plan details.
Can I use the Dependent Care FSA if my provider doesn't report the income to the IRS?
No. Therefore, we must have your provider's social security number or Employer Identification Number in order to process dependent care claims.
What information is reported to the IRS?
We do not supply information to the IRS related to an individual FSA. The plan sponsor, your employer, may be required to file an IRS form 5500 which includes participation and total disbursement information (does not include individual FSA information) and your participation in the Dependent Care Assistance Program will be reported on your W2 at the end of the year by your employer.
Health Insurance Coverage
What if I am not covered under my company's health insurance plan?
You and your family can still participate in the Health Care and Dependent Care Flexible Spending Accounts.
Who are qualified dependents?
Dependents must be either your spouse or someone you can claim as an exemption for federal income tax purposes.
To be covered through your Dependent Care FSA, the individual must meet one of the following criteria:
- Your dependent under age 13 for whom you would be entitled to a deduction under IRS Code 151(c);
- Your dependent who is physically or mentally incapable of caring for him or herself; or,
- Your spouse who is physically or mentally incapable or caring for him or herself.
Using Your Dependent Care Flexible Spending Account
Can I make changes to my FSA election after the plan year starts?
Once an election for the FSA(s) has been made, you cannot change the amount unless you terminate employment with your company or there is an appropriate change in status. Valid changes in status for both Health Care and Dependent Care accounts include:
- Legal marital status change – marriage, divorce, death of spouse, legal separation or annulment
- Change in number of dependents – birth, adoption, death of a dependent
- Employment – change in employment status of employee, spouse or dependent to include termination, switching from part-time to full time or vice versa, return from an unpaid leave of absence
- Residence – change in the residence of employee, spouse or dependent that changes the service area in which you are located
- Dependent eligibility – situations where a dependent satisfies or ceases to satisfy the rules for eligible dependents due to the attainment of age, student status, or similar circumstances as provided in the plan
- Annual election changes for changes in cost of coverage
If my child turns 13 during the plan year, may I still use my Dependent Care FSA through the end of the plan year?
No. You are no longer eligible to be reimbursed for care for a child as of age 13, unless they are physically or mentally incapable of caring for themselves. Having a child attain age 13 is a qualifying event and a reason to terminate your participation in the plan.
What happens if my employment terminates?
For a Dependent Care FSA, your deductions will end when your employment ends. You are eligible to be reimbursed only for services that were received before your termination date, but you can request reimbursement for these expenses through the end of your former employer's plan year.
Deductions for your Health Care FSA will also end when your employment ends unless your employer is obligated to offer you COBRA continuation and you elect this option. If your employer is not obligated to offer you COBRA and/or you choose not to elect COBRA, you are eligible to be reimbursed for qualified expenses incurred while you were employed and the account was active. Requests for reimbursements should be submitted prior to the end of your employer's runoff period.
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Can You Get Child Care Expenses Back at Tax Time
Source: https://www.connectyourcare.com/tools/faqs/dependent-care-fsa-faqs/
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