If you pay for the care of a child, parent or other tax dependent so that you can work or attend school, you could benefit from a Dependent Care Flexible Spending Accounts (DCFSA), also known as a Dependent Care Assistance Plan (DCAP). Here are the questions that I get the most about this type of tax-advantaged employee benefit account.
A DCFSA/DCAP is an employer-sponsored benefit that allows workers to set aside money from their paychecks before taxes are calculated to pay for dependent care while working or to attend school.
If your employer offers this benefit, you can take advantage of it if you have:
That depends on marital status and how you file your income taxes. If you submit your tax return as a married couple filing jointly or as a head of household, you can contribute up to $5,000 per year.
If you file your tax return as married filing separately, you can contribute up to $2,500 per year.
You can use the funds you have set aside to pay for these expenses:
You cannot use your DCFSA/DCAP funds to pay for any of the following expenses:
If your employer offers a debit card for your Dependent Care Assistance Plan, you can use it to pay the caregiver. However, unlike a healthcare FSA, you cannot use your debit card for more than the remaining balance of what you’ve paid into your DCFSA/DCAP account. In other words, you cannot use a debit card to pay ahead of your actual deposits.
The other way to get money out of your account is to file a claim for reimbursement. You pay the expense and then submit a receipt to be reimbursed out of your DCFSA/DCAP account for what you spent. To file a claim, you’ll need the following:
Ask your benefits administrator about how to submit a reimbursement claim. Most will accept uploading to an online portal, email, fax, and in some cases, through a mobile app on your smartphone.
Be aware that credit card slips, canceled checks, and balance-forward statements are not considered itemized receipts, because they don’t provide the required level of detailed information.
Recurring Expense Filing: Here’s a time-saving tip that also gets you reimbursed as quickly as possible. If your dependent is enrolled in a program that charges the same amount over and over, like X amount per day, or week, or month, ask your administrator if they accept recurring expense claims. If they do, you fill out the form one time for the entire recurring service period (up to a full year) and have your caregiver sign it to verify the amounts. Once the form is processed, you will be reimbursed automatically each payday until you’ve received your total annual contribution or the total amount claimed on the form has been paid out, whichever comes first.
If you experience a qualified change of status, such as a divorce after which you are no longer obligated to provide care for a particular dependent, you can adjust your annual contribution amount to cease paying more into the account. However, money already paid into your DCFSA/DCAP must be spent for qualified expenses or else the funds will forfeit to your employer at the end of the plan year. Be sure to only claim the amount you think you will spend before the end of the plan year.
See IRS Publication 503 for more information.
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