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Dependent Care Flexible Spending Accounts
Flexible Spending Account Basics
If you have dependents who need care while you are at work, and you are getting ready to start a civilian job, you need to know about Flexible Spending Accounts, or FSAs – a way to help you cover the costs of taking care of your dependents while you work. If you already know all about the Dependent Care Flexible Spending Accounts, or if you have a few more years before you start a consistent job, feel free to skip this one.
What are Flexible Spending Accounts?
As an employee of a civilian institution, you will most likely have access to flexible spending accounts. These accounts allow you to set aside money for certain expenses on a before tax basis, meaning that you don’t pay income or payroll taxes on that money. You save your current tax bracket rate plus 7.65% (for Medicare and Social Security). As a resident with a spouse working part time, I’m in the 12% tax bracket this year, so every dollar put into a flex account means it really only costs me about $0.81. If you are an attending, the savings can be even higher as your tax bracket goes up.
Types of Flexible Spending Accounts
The two types of FSAs are for Dependent and Health Care. This post will focus on Dependent Care, and I’ll make a post in the future dives deep into the Health Care Flexible Spending Account rules.
Eligibility for the Dependent Care Flexible Spending Account
Eligible dependent care includes the cost of childcare for children under 13 years old so that you can work, up to a certain limit. In order to claim those expenses the costs must be incurred so you AND your spouse can work. If your spouse stays home with the kids, you can’t put money in the account unless he or she has some kind of job where someone needs to watch the kids. This doesn’t have to be work outside the home, but it does have to be legitimate employment. For example, my husband works from home. We have a child in preschool, and he works while she is in school. We use a dependent care FSA to pay her preschool tuition.
There is currently no dependent care FSA for military members – in order to take advantage of the dependent care FSA, the individual contributing to the FSA must be employed by a civilian institution.
There are per-household maximum contributions (more on that later), so while either parent can contribute to the account, or both, you can’t put in twice as much money by having two adults contribute. So if one parent is in the military and the other is a civilian, just have the the civilian parent contribute to their FSA.
If both parents are in the military, you unfortunately do not have access to this benefit.
Putting money into the account
How do I pay into a Flexible Spending Account?
Each pay period your employer will hold back an even amount based on how many pay periods you have. Once the money leaves your paycheck, the whole process is handled through a third party benefits company instead of your institution’s human resources or finance office. I get 26 paychecks a year (biweekly), so each pay period 1/26th of the amount I chose to put in the flex account is deposited to that account.
How much can I put into the account?
For 2018, you can contribute up to $5,000 per year per household, or the lower-earning spouse’s total income, whichever is less. For example, if your spouse makes $3,000 doing tax returns during tax season, you can’t put more than $3,000 into the dependent flex account. If you and your spouse each make $55,000 per year, you can contribute a total of $5,000 per year. The annual cap could change in the future; your employer’s benefits office will have the most up-to-date numbers.
Are the funds matched?
Some institutions do match some FSA contributions. My institution kicks in $260 a year ($10 per pay period) for participating in the program, so I only actually have $4,740 taken out of my pay. Because I’m not paying income, Social Security, or Medicare taxes on the money I do contribute, it really only costs me about $3,840 to get $5,000 to spend on childcare.
Spending the money in the account
How do I spend the money in the Flexible Spending Account?
When you have a covered expense, you pay the expense using your own money. You then submit a form to the flex account company for reimbursement, and the money shows up in my bank account in a few days. If I pay my child’s tuition bill on the 1st of the month, I won’t get reimbursement from the flex account until sometime around the 5th of the following month.
If there isn’t enough money in the account to cover the full expense, you get what’s been deposited in the account and have to wait until the next pay period. Fortunately, I only have to submit one form for each expense. The flex account company will automatically send the unpaid balance of my expenses to me as the funds become available. This is an entirely different policy from healthcare flex accounts, in which all of the funds are available to you up front. More on that in another post.
What can I spend the money on?
In general, you can use the money to pay for any sort of childcare for a dependent child under age 13. There are some nuances to the rules, all of which can be found from the flex account company. For example, preschool is covered, but private school
tuition for K-12 is not. A babysitter to watch the kids while you go out on a date is not covered, but it can be if you pay a sitter to watch your child if it means you are able to work. Although much less common, the account can also be used to pay expenses for a spouse or dependent who is physically or mentally incapable of self-care.
Other things that you can use the money for:
- Summer camps (day camps only)
- Before and after school programs
- Nannies and Au Pairs
- Registration fees for camps, preschool, etc.
PayFlex is one of the most common FSA administrators. You can find some useful information on their site, here.
What questions do you have about FSAs?