12 Things You Didn’t Know About the Dependent Care FSA
The BESTflexSM Plan Dependent Care Flexible Spending Account is an option of the BESTflex plan provided by your employer.
1. A specific type of care.
Dependent Care Flexible Spending Accounts allow for tax-free reimbursement of eligible daycare expenses or other custodial care for your tax dependents. (In other words, it does not cover health care.)
Really, “daycare flexible spending account” would be a better name! (But who wants to argue with the Internal Revenue Service?) We sometimes refer to it as “DCFSA.”
2. “Free money” for employees.
Participants save an average of 30% in taxes by using DCFSAs versus paying for daycare out-of-pocket. We’re talking about FICA (Social Security), Medicare, federal withholding, and state withholding taxes – gone!
3. Plan ahead.
Think you’ll just sign up for the dependent care FSA anytime? Sorry, that is against IRS regulations for these special tax-advantaged accounts. You must enroll in the dependent care FSA prior to the start of the plan year, during your employer’s open enrollment period (unless you experience certain life events, called Permitted Election Change Events that allow a special mid-year enrollment.)
4. Pay first, reimburse later.
You must pay the daycare provider up-front.
To be reimbursed, submit a claim with payment documentation to Employee Benefits Corporation. Cancelled checks will not qualify as proof of the expense.
Note: Unlike the BESTflex Plan health care FSA (which can use the Benefits Card for payment), the only way to request reimbursement from your DCFSA is by submitting a claim. This is easier than ever using My Account Assistant or our mobile app, uploading a photo of the documentation using your computer or smart phone.
5. No fortune tellers here.
You can only be reimbursed after the daycare/custodial care service has been provided. The IRS created this rule because care cannot be guaranteed for the future.
6. Some mid-year changes permitted.
In addition to the life events like marriage, divorce, legal separation, birth of a child, adoption of a child and change in tax dependents that may impact your need for care or the cost of care, the cost of coverage rules permit changes when you have a change in cost, a need for care, or a daycare provider.
For example, your daycare provider may close mid-way through the plan year or you may decide to change daycare providers mid-year. If the cost changes, you may be eligible to adjust your DCFSA election if you complete the request within 30 days.
(Not the name of a game show, as some may believe.) If you do not use DCFSA funds by the end of the plan year’s runout period (and any applicable grace period), you forfeit the funds. Poof. Gone.
(Check My Company Plan to find out if your employer provides grace period.)
8. Looking for work.
While using the dependent care FSA, the participant and spouse must be working, look for work, or attending school full-time. For instance, if a participant’s spouse is unemployed but actively looking for work, the participant still has eligibility for the DCFSA.
9. Going back to school.
If a participant’s spouse decides to leave the workplace and attend college full-time, the participant is still eligible for the DCFSA. A spouse that is a full-time student will be deemed to have earned $250 per month for one qualifying individual and $500 per month for 2 or more qualifying individuals.
Again, to be eligible for the dependent care FSA, the participant and his/her spouse must be working, looking for work, or attending school full-time.
10. Dependent care and divorce.
Per IRS regulations, if an employee is divorced from the other parent, the custodial parent (parent that has custody the majority of nights in the year) may elect the Dependent Care FSA. If the parents have 50/50 custody, the parent with the higher adjusted gross income is allowed to elect a dependent care FSA for the child’s daycare expenses.
11. Giving back.
The DCFSA can be used to pay for care for all of your income tax dependents, including expenses associated with daycare for an immediate adult family member while the you and the other parent or your spouse are at work.
To qualify, the adult family member must:1) be mentally or physically incapable of self-care, 2) be your spouse, child, or income tax dependent, 3) have the same principal place of abode, 4) spend at least 8 hours per day in your home.
Note: The dependent care FSA does not cover health care services, such as an in-home nurse. It covers custodial care only.
Did you know that you can submit claims for services that take place after your account or your employment terminates? It’s true! You can continue to incur qualifying DCFSA expenses and file claims through the remainder of the plan year in which you terminated, to spend down any DCFSA balances.
You will also have the regular runout period to take care of any paperwork (usually 3 months following the end of the plan year). (Note: Submitting claims for services provided after termination is possible with the dependent care FSA, but not with the health care FSA.)
We hope that you now have a better understanding of the BESTflex Plan Dependent Care Flexible Spending Account! Hungry for more DCFSA knowledge? Check out our Dependent Care FAQs.
Looking for something else? Visit these helpful pages for participants:
Benefits Card Help
BESTflexSM Plan Help
EBC HRASM Help