Dependent Care FSA Rules and Limits
Dependent care FSA accounts are fairly straightforward and easy to understand. At the time of this writing there is a $5000 upper limit on how much can be put aside by any one family for the care of their dependents that occurs at times that allow the adults to work. This means, for example, that even if a couple files their taxes separately, the total put aside can still only be $5,000. And it makes no difference how many dependents are involved – the $5,000 upper limit for dependent care FSA accounts is per family not per child. These FSAs run for a certain plan year which could be different from both the calendar year and the fiscal year at your work, and of course the $5,000 limit also runs for that same year.
Aside from the $5,000, the other rules involved with dependent care FSA accounts have to do with the type of care that is eligible. Sometimes this is obvious, such as in the case of an after school program that extends the day to match the parents’ work day. Yet sometimes things are less clear, such as when a babysitter or nanny is used for hours that may sometimes but not always be during the work day. Basically the rules surrounding dependent care FSA accounts are that it has to be relatively easy to separate out the amount you paid for care during your work day (as is the case with a babysitter who charges hourly) and not a huge challenge to do so (as is the case with overnight camp).
You have to be sure that the amount you paid to the flexible spending account provider was for the care itself, and something like a late fee may not be included. That said, some dependent care FSA accounts do allow you to include an enrollment fee, but it varies and may depend on how that fee is defined by the provider.
The common mistakes people make because they have inaccurately assessed the dependent care FSA rules include:
1. Choosing the wrong care that they think will be reimbursed. Parents who think that summer camp will count toward their totals, or who want to include some fees that are not covered, or who are including care that is not during the work day can be very disappointed when charges are rejected. Of course this is especially true when they are cutting it close and do not have back-up ideas as far as expenses they can use later in the plan year.
2. Not understanding who can be termed a “dependent”. The age of your child matters when you are claiming that the expenses should be reimbursed for a non-disabled person. No one is going to remind you of that when you sign up for your FSA, so you need to know the rules of your plan with regard to your child’s age.
3. In situations where there are custody issues you need to be sure its clear who is taking the dependent care expenses and who is not. The limits are per family not per parent, so each parent cannot take the full amount. In a related way, make sure that the child qualifies to be someone you claim as a dependent for an FSA.
4. Not getting the right documentation can be a problem. make sure you know exactly what information you need from the provider. This is not usually a problem with larger providers who are well established and used to providing these receipts, but it could be an issue with less formal arrangements.
5. When family members are providing the care the dependent care FSA rules can be complicated and you should make sure you can still claim the expenses.