FSA: Dependent Care Flexible Spending Account

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 . 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  
• Eligible Dependents Under A Dependent Care FSA  
  
• FSAs in general

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