Flexible Spending Accounts

Dependent Care Flexible Spending Account Reimbursement 

You can use your Dependent Care Flexible Spending Account to pay for eligible dependent care expenses only. Eligible dependent care expenses are expenses that are necessary for you (or you and your spouse) to work outside the home.

Your claim for dependent care reimbursement must meet four requirements before it can be approved: 

  • your claim must be for the care of an “eligible dependent” (as defined below);
  • the care provided must be for an eligible dependent care expense (see below for examples);
  • you cannot be reimbursed for more than the amount in your Dependent Care Flexible Spending Account; and
  • your claim must be supported by appropriate documentation. This includes the name, address, and Social Security number (or Taxpayer Identification Number) of the dependent care provider. 
If you are married and your spouse does not earn any income, you are not eligible for dependent care benefits – unless your spouse is a full-time student, is actively seeking gainful employment, or is disabled and unable to provide for his or her own care. Your spouse is considered to be a full-time student if he or she attends an educational institution for at least five months a year.

MAXIMUM REIMBURSEMENT
The maximum amount of your annual dependent care reimbursement cannot be more than your income or your spouse’s income, whichever is lower. If your spouse is disabled or a full-time student, your spouse’s income will be assumed to equal: (a) $250 a month; or (b) $500 a month if you have two or more eligible dependents. 

USING YOUR ACCOUNT
The eligible dependent care expenses that you incur during a given calendar year can be reimbursed only with the deposits you made during that year. For example, you cannot use the account deposits you make during this year to pay for services that were performed last year. 

CLAIM FILING DEADLINE
The deadline for filing Flexible Spending Account Plan claims is March 31. This means that you have until March 31 of each year to submit your claims for eligible dependent care expenses incurred during the previous calendar year. 

FORFEITURE
Any unclaimed amount that is remaining in your Dependent Care Flexible Spending Account as of March 31 of a given year will be forfeited. For example, assume that: 

  • you elect to deposit $800 in your account for the 2017 calendar year; and
  • you file claims for $700 in eligible dependent care expenses that you incur during the 2017 calendar year. 

In the above example, the $100 remaining in your account as of March 31, 2018 would be forfeited. 

The above forfeiture rule is required by IRS regulations. Any amounts that are forfeited by participants will be used to reduce the plan’s administrative expenses.

WHO IS AN “ELIGIBLE DEPENDENT”?
Your eligible dependents are: 

  • your children or dependents under age 13 who are claimed as exemptions on your federal tax return; or
  • your mentally or physically disabled spouse or dependents (regardless of age) who are unable to care for themselves and reside with you for at least one-half of the year. 

Divorce or Legal Separation: If you are divorced or legally separated, it is not necessary for you to claim your children or dependents under age 13 as exemptions on your federal tax return, provided that you have custody for a longer period than the other parent. 

ELIGIBLE DEPENDENT CARE EXPENSES
You can use your Dependent Care Flexible Spending Account to pay for: 

  • nursery schools, kindergartens, day care centers and summer day camps. (If the care is provided in a “dependent care center,” that center must comply with state and local laws, care for seven or more children at one time, and receive a fee or payment for the service);
  • centers that provide day care (not residential care) for dependent adults;
  • household services related to the care of a dependent;
  • a person (other than your spouse or child under age 19) who provides care in or outside of your home;
  • a nurse at home; or
  • a housekeeper who cares for your eligible dependents. 

Eligible dependent care expenses also include Social Security taxes and unemployment insurance taxes paid on behalf of the person who cares for the eligible dependent. 

INELIGIBLE EXPENSES
The following kinds of expenses do not qualify for Dependent Care reimbursement: 

  • expenses paid on behalf of a person who is not an “eligible dependent” (as defined above);
  • payments to your spouse (or any person that you claim as a dependent on your federal tax return) for the care of a dependent;
  • payments to your children under age 19 (for example, your teenage son or daughter) for the care of a dependent;
  • babysitting during nonworking hours (for example, Saturday night babysitting);
  • payments to any person who cares for a dependent when you or your spouse is not working;
  • charges for a convalescent nursing home for a parent;
  • overnight camp expenses;
  • education expenses for children in the first grade or above;
  • the cost of food, clothing, education, or transportation between your home and a dependent care facility (except for transportation to and from the dependent care location provided by the dependent care service);
  • expenses for which you have claimed (or will claim) federal child care and dependent care tax credits (see below);
  • charges for the services of a care provider who has no Social Security or Taxpayer Identification Number.          
Any reimbursement that is paid for an ineligible expense will be subject to income taxes. If you are not sure whether a dependent care expense qualifies for reimbursement, you can view the list of eligible and ineligible expenses on the Flexible Spending website at www.flexdirect.adp.com or by calling ADP at 1-800-654-6695. You can also contact your local Internal Revenue Service (IRS) office for more information, including a copy of IRS publication 503. 

DEPENDENT CARE TAX CREDIT
Under current law, you are allowed to take a federal dependent care tax credit for a portion of your dependent care expenses if they are necessary to allow you and your spouse to work outside the home. 

If you use your Dependent Care Flexible Spending Account to pay for a given dependent care expense, you cannot claim the federal dependent care tax credit for the same expense. In addition, the maximum amount of the federal dependent care tax credit available to you each year will be reduced by the amount you elected to deposit in your Dependent Care Flexible Spending Account for that year. 

Which Tax Break is Better?
The answer to this question depends entirely on your personal situation, including your taxable income, number of dependents, and the amount you pay for dependent care. Keep in mind that your taxable income (W-2 pay) will be reduced by your Dependent Care Flexible Spending Account deposits during a given calendar year. 

You can estimate the amount of your federal dependent care tax credit by referring to the worksheet and instructions on IRS Form 2441. This information also appears on IRS Form 1040A (Schedule 1) and instructions. You can obtain either of these forms by contacting your local IRS office. 

Tax Filing: If you use your Dependent Care Flexible Spending Account during a given calendar year, you must file IRS Form 2441 along with your other tax returns for that year. 

Keep in mind that if the eligible dependent care expenses you incur during a given calendar year are less than the amount you elected to deposit for that year, you will forfeit the unused portion of your account balance. This is explained under "Forfeiture" in the How Your Flexible Spending Accounts Work section.