Ask yourself the following questions about your Dependent Care Flexible Spending Account (and you thought today’s post wasn’t going to be fun!):
- Do you smile and nod when anyone mentions FSA?
- Did you sign up because you heard some parents talk about it at the bake sale last week?
- If somebody bet you a million dollars that you couldn’t explain how your FSA works would you lose the bet?
If you answered ‘yes’ to any of those questions, read on. Your FSA stands for Flexible Spending Arrangement (or Account). Here are the things you should know:
- The money you set aside is PRE-TAX thus reducing your taxable income on April 15th
- Married (filing jointly) filers are limited to $5,000/year and single filers $2,500/year
- Only the parent with custody can use an FSA for childcare if you are divorced
- If you married, BOTH spouses must work to qualify unless one spouse is disabled
- Children must be 13 or younger for expenses to qualify
- Adult spouses (or claimed adult dependents) must be unable to work or care for themselves
Okay, now you know if you qualify, what can you spend these lovely pre-tax dollars on?
- Physical and in-home care (e.g. nanny, au pair, daycare, institutional care)
- Summer camps!!!!
- Before or after care
- Transportation provided by a caregiver (e.g. special buses, driving, etc.)
- Application fees and deposits for care, but only if care is actually provided
But, kindergarten, pre-school, summer school, tutoring, tuition DO NOT qualify, neither does babysitting by a minor or sibling. Overnight camp, activities or enrichment programs (like ballet or soccer) and housekeeping DO NOT qualify either.
Here’s what you MUST REMEMBER:
- You MUST USE ALL the funds in your FSA account the year you put them in or they are GONE.
- It’s also your responsibility to put in for reimbursement. DO NOT forget or you will not be paid back.
- You should also weigh the benefits of pre-tax dollars with the child/dependent care tax credit. Take the larger one. This is a good article to help you compare them.
- You have to RE-ENROLL every year, it’s not automatic.
Bottom line is that it’s not a foregone conclusion that you should use your FSA. If you think there’s a chance you may forget to do your reimbursements or not use it all up before the end of the year, DO NOT DO IT. It’s one of those things that sounds good, but is only good if you use it exactly as it is designed.