Dependant Care Flexible Spending Account (DCA/FSA)

A DCA/FSA is an employer-sponsored benefit program that allows you to set aside money from your paycheck on a PRE-TAX basis to pay for daycare expenses for your eligible dependents.  This flexible spending account avoids the  Social Security, Medicare as well as the Federal and New York State tax on that income. A Dependent Care FSA lets you use pretax dollars to pay for eligible expenses related to care for your child, disabled spouse, elderly parent, or other dependent who is physically or mentally incapable of self-care, so you can work, or if you’re married, for your spouse to work, look for work or attend school full time. The minimum and maximum amounts you can contribute to the Dependent Care FSA are set by your employer, although the maximum allowed by the IRS is $5,000 a year for married couples or $2,500 if you are married and filing a separate tax return.  The alternative to using a Dependent Care FSA is to take a dependent care tax credit when you file your federal income taxes.  The IRS allows an income tax credit of up to $3,000 for dependent care expenses if you have one dependent, or up to $6,000 if you have two or more dependents. The amount of the credit is based on your adjusted gross income and applies only to your federal income taxes. So, while the maximum allowed under a Dependent Care FSA is $5,000, you may be able to apply the Child and Dependent Care Tax Credit for amounts over that limit – up to your tax credit limit – depending on your tax situation.  Your preferred method depends on your income, number of eligible dependents, and other factors; however, Dependent Care FSAs usually provide the greater tax advantage for most people, especially as income increases. Should you wish to discuss which program best suits your needs feel free to call our office

  • Eligibility Rules for Dependent Care FSAs- Your qualified dependents for a Dependent Care FSA may include
    • Your child(ren) under age 13
    • Dependents of any age who are mentally or physically incapable of caring for themselves, and whom you claim as a dependent on your federal income tax return.
    • An adult may qualify as your dependent if you provide more than half that person’s maintenance costs during the year.

Expenses for care of a qualified dependent are only eligible if the care enables you (or you and your spouse) to work, look for work, or go to school full-time. If your spouse is a stay-at-home mom or dad, you cannot participate in Dependent care FSAs. Eligible expenses include:

  • Fees for licensed day care or adult care facilities.
  • Amounts paid for services (including babysitters or nursery school) – provided in or outside of your home – for the care of a qualified dependent necessary to allow you and your spouse to work, look for work, or attend school full-time.
  • Placement fees for a dependent care provider, such as an au pair.
  • Summer day camp for children under age 13 qualifies if attendance allows you and your spouse to work, look for work, or for your spouse to attend school full-time.
  • Before and after school care programs for dependents under age 13.
  • Payment to a relative (age 19 or older who is not your dependent) who cares for your qualified dependent.
  • Payment to a housekeeper whose duties also include dependent day care.
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