Part Timers and the Dependent Care FSA
12/7/2011 9:55 AM
Q. Employer: We’ve had a question come up a couple of times at our meetings this week regarding dependent care. One of the points on our slides is that the employee and spouse must either be working or full time students to be able to use the dependent care account. Are there a minimum number of hours that they need to be working?
A. No. Under the regulations, there is not a minimum hourly requirement that an employee and spouse need to be working to be eligible for reimbursement from the Dependent Care FSA.
Dependent care expenses must be incurred in order to allow an employee and spouse to work or look for work, hat is, “to be gainfully employed.” See Code §§129(e) and 21(b)(2). Work can on a full-time or part-time basis. The regulation considers one hour of work in a day as a day of work.
So, commonly, a part time employee works each day, but not the full day (e.g., 4 hours per day). If the day care provider charges for a full day, the participant can claim the entire expense, even though they aren’t working the full day and even if the child isn’t at day care the full day.
However, for part-time, the parent must allocate expenses for dependent care between working an nonworking days, if they don’t work each day of the week, unless they are required to pay for dependent care on a periodic basis (weekly or monthly) that includes both working and nonworking days. Again, the regulation provides that a working day is a day in which the individual works at least one hour.
For example, parent works 25 hours a week but only on M, W, F and day care charges $150 for three days per week or $250 for 5 days per week. Parent puts child in day care 5 days per week. Here, parent must allocate expenses between working and nonworking days, so parent could only get reimbursed $150 for the week (the days that the care allows parent to be gainfully employed).
On the other hand, parent works 25 hours per week, but only on M, W, F but day care requires payment on a full-time, weekly basis of $250. Here, the whole $250 is reimbursable and no allocation is required.