What is a Dependent Care FSA?
A Dependent Care FSA is a pre-tax benefit account used to pay for eligible dependent care services, such as preschool, summer day camp, before or after school programs, and child or adult daycare. It's a smart, simple way to save money while taking care of your loved ones so that you can continue to work.
Who is eligible?
There are a few restrictions for who is considered eligible for a DCFSA account. If DCFSAs are offered and an employee claims qualified dependents, they are eligible.
Eligible expenses include:
Services for a dependent must be rendered while an employee is at work or school.
The dependent must be 13 or younger.
Can also be used for older dependents that are physically or mentally incapable of self-care.
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How are DCFSAs funded?
DCFSAs are typically payroll-funded with annual election which means you have to decide how much to contribute to your Dependent Care FSA account based on how much you plan to spend in the upcoming year on child or adult care expenses. And after you're enrolled, your funds are withdrawn automatically from each paycheck for deposit into your account before taxes are deducted. As soon as your account is funded, you can use your balance to pay for many eligible dependent care expenses.
Yearly Contribution Limits:
If married and filing jointly, the maximum annual election is typically $5,000 in 2020.
If married and filing separately, the maximum annual election is typically $2,500 per spouse in 2021.
Plan Year: Most often one year.
Who is eligible to Contribute? DCFSA plans can only be sponsored by employers. Employees can open a DCFSA regardless of health plan enrollment. DCFSAs let you use tax-free money to cover child care for qualifying children or adult dependent care for qualifying adults and relatives. You or your spouse must be working, searching for work, or attending school full-time in order to qualify for the DCFSA.
Who owns the account? A DCFSA is owned and set up by the employer.
What are the funds that I have access to use? An employee may only use the funds that are available in your account, not the entire election amount.
When can I change my contributions? DCFSA users can only change their contributions during their open enrollment periods. Some plans also allow changes to contributions to be made if the account holder experiences a Qualifying Life Event (QLE), such as marriage, divorce, or birth of child.
Special Rules: Employers can choose one of two (or none) options to provide relief for DCFSA users who would otherwise have to forfeit leftover funds:
1. Runout Date- An extra time that an employee can submit manual claims for services render in the previous plan year to be reimbursed for that previous plan year's funds.
2. Grace Period- Give users 2.5 months after the last day of their plan years to spend down their remaining DCFSA funds.
Though you are not able to access the funds that haven’t been built in the account, the rule below can help you.
On Hold- Allow a reimbursement to be placed on hold until funds are available for reimbursement or until the annual election is reached. Essentially, if a claim is submitted that is larger than the funds currently available, only the total amount of the account will be reimbursed and the remainder would be placed on hold until the next pay cycle. The employee would then continue receiving reimbursements each following pay cycle until the claim has been fully paid or until they meet their maximum annual election for their DCFSA.
Please note that a new Covid-19 Relief Bill has made some changes regarding changing your election mid-year, run-out-period, grace period, rollover, and qualified dependents. Your employer decides on which type of DCFSAs account they offer. To find out which scenario applies to you, please reach out to firstname.lastname@example.org for help or to your HR benefits team.
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