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Summary

The concept behind a dependent care Flexible Spending Account (FSA) is to permit employees to continue to work by providing tax advantaged funds for child care and/or adult care for senior citizen dependents that live with the employee. Covered dependents include:

  • The employee's children under age 13.
  • Any other person who is a qualified IRS dependent, regardless of age, who is mentally or physically incapable of caring for him or herself. Additionally, the dependent cannot have income greater than the federal exemption level for that year.  (To learn about the exemption level in a particular year, see IRS Publication 501 offsite link. Click on Exemptions For Dependents.)

FSA debit cards can be used with dependent care FSAs, but are subject to restrictive IRS requirements that generally require employees pay the first child-care bill of each year by other means.

It is not as easy to determine whether a Dependent Care Flexible Spending Account is worthwhile as a Health Care Flexible Spending Account.. With dependent care there is a tradeoff with tax credits while with a Medical Care FSA the trade off is an itemized deduction subject to a high threshold.

The maximum that can be set aside for a Dependent Care FSA for a given calendar year is $5,000. If expenses are incurred which are above what you contribute, you can keep the remainder of your claim in "pending." As future contributions are made through payroll deductions, you can be paid the remaining balance to a max of your annual election.

For additional information, see:

Expenses Which Can And Cannot Be Paid From A Dependent Care FSA

Expenses which can be paid from a Dependent Care FSA:

  • Private babysitting and day care.
  • Care for a child under age 13 at a day camp or nursery school.
  • Expenses for pre-school and after-school childcare (separate from any tuition expenses).
  • Elder care for an incapacitated adult who lives with you at least 8 hours a day.

Expenses which may not be paid from a Dependent Care FSA include:

  • Medical expenses.
  • Educational tuition.
  • Expenses for overnight camps.
  • Overnight care unless it allows you and your spouse to work during that time.
  • Expenses for education or tuition.
  • Diaper service.
  • Late payment fees.
  • Sports lessons, field trips, clothing, meals, snacks.
  • Transportation to and from the child care provider.
  • Child support payments or child care if you are a non-custodial parent.
  • Long term care for parents that live elsewhere such as in a nursing home.

Eligible Dependents Under A Dependent Care FSA

  • Your children under age 13.
  • Any other person who is a qualified IRS dependent, regardless of age, who is mentally or physically incapable of caring for him or herself. Additionally, the dependent cannot have income greater than the federal exemption level for that year ($3,200 in 2005).