Dependent Care FSA Rules You Need to Know
Everything from eligible expenses to changing elections
There are certain flexible spending account rules that any consumer considering this financial vehicle needs to know. In fact, it is important that you know your flexible spending account rules before you even sign up to be sure that your expenses will be eligible and you will spend out what you put aside without too much effort. The flexible spending account rules, whether for your dependent care FSA or your health reimbursement account, that are most important can be broken down into several categories, as follows:
Flexible spending account rules regarding “Qualifying Life Events”
- Any change in your legal marital status, including the death of your spouse
- A change in the employment status of you or your spouse, or in the case of dependent care accounts, of your dependent
- A change in your number of dependents for tax purposes
- A change in your dependent’s eligibility, such as when he or she turns 13
The changes you can make due to these events are often retroactive to the time they occurred, but your flexible spending account rules may put a limit to how long after they occurred you can report them. There may be certain rules as far as how you must report these changes and how quickly, and there may be differences among individual Flexible Spending Account rules in the details of how each of these applies. Do not take this simple list for granted – ask your plan administrator about your own flexible spending account rules if you think any of these changes might be possible over the plan year before you sign up.
Minimum FSA reimbursement thresholds
You may want to keep the minimum reimbursement thresholds in mind when submitting claims – it may save you some work and motivate you to bundle them. Your FSA company may not send out reimbursement unless a claim is over a certain amount. Why send in a receipt to be reimbursed when you’ll just have to wait until another one goes in anyway? These flexible spending account rules are lesser known and often not that important to the consumer, but they are worth knowing because they can save you time.
Flexible spending account Rules for Denials
- A claim for reimbursement is not paid in full
- A product (for a healthcare account) or a service (for any kind of FSA) is determined to be ineligible
- A request for a change to your flexible spending account due to a qualifying life event is not approved
Now of course while the flexible spending account rules may give you the right to appeal, there is no guarantee that you will win the appeal so you still must be sure you know your flexible spending account rules well – do not count on winning the appeal.
Flexible spending account rules around leaves
If you go on a leave your flexible spending account rules will revolve around whether your leave is with or without pay and often the reason for the leave itself. If you go on a leave without pay usually you will still be able to draw down the balance on a Dependent Care FSA, but not on a Health Reimbursement Account. Of course you will not be building up new money in either type of account. Check with your plan administrator first however because your flexible spending account rules for leaves may uniquely interact with your particular leave.
If your leave is with pay then things get much more complicated. Different FSAs treat this situation differently, and you really have to talk to you plan administrator to find out how your paid leave will be treated.
Year to Year deductions and participation
Keep in mind that Flexible spending accounts, whether a health reimbursement account or Dependent Care FSA do not automatically roll into the next plan year. You will always have to not only elect whether or not to participate, but also decide exactly what your deductions will be. This protects you against mistakenly assuming that your expenses will be the same year after year, and it forces you to give some thought to gaining that maximum savings. Stay aware of the plan year and your employer’s announcements about open enrollment.
Different Tax Situations and FSAs
If you are either an individual applying alone for your or your family’s Dependent Care FSA or Health Reimbursement Account, or the one member of a married couple applying for benefits, things are relatively simple and the limits clear. However, if you are either married but filing separately, married but splitting the costs between two plans, or divorced/separated parents splitting the cost to split the tax advantages, then things get a little tricky and the flexible spending account rules may be harder to interpret.
In situations where couples are married but filing separately flexible spending account rules dictate that each person can only claim one half of the allowed amount each plan year. This also usually applies to parents who are not longer together and therefore filing taxes separately, though in this situation there may also be limits depending on where the children live, who is paying for the services, and in the case of Dependent Care FSA who needs the service so that they can work. Things get even more complicated when couples who file together split their FSAs – this is very uncommon but is something each plan administrator should give you direction on.