Child and dependent care is a critical issue and a large expense for many American families. Millions of people rely on child care to be able to work, while others are responsible for older parents or disabled family members. Show
If you care for a child or adult who is incapable of self-care, who lives in your home for at least eight hours each day, and whom you can claim as a dependent on your income taxes, you may be able to take advantage of dependent care through a flexible spending account (FSA). These accounts allow individuals to pay for qualified child and dependent care expenses while lowering their taxable income. Key Takeaways
Benefits of a Dependent Care FSAHow Dependent Care FSAs WorkDependent care FSAs are set up through your workplace. Participants authorize their employers to withhold a specified amount from their paychecks each pay period and deposit the money in an account. Instead of using the FSA money to pay for expenses directly, you pay those costs out of pocket and then apply for reimbursement. Once you have paid for expenses that qualify for reimbursement from the FSA, you will need to complete a claim form provided by your employer and attach receipts or proof of payment with the form. The receipts must include specific information to prove that the payment was for qualified expenses. Specifically, the receipt must note:
The main benefit of an FSA is that the money set aside in the account is in pretax dollars, thus reducing the amount of our income subject to taxes. For someone in the 24% federal tax bracket, this income reduction means saving $240 in federal taxes for every $1,000 spent on dependent care with an FSA. Dependent Care FSA Limits for 2022The Internal Revenue Service (IRS) limits the total amount of money that you can contribute to a dependent care FSA. The 2021 dependent care FSA contribution limit was increased by the American Rescue Plan Act to $10,500 for single filers and couples filing jointly (up from $5,000) and $5,250 for married couples filing separately (up from $2,500). For 2022, the dependent care FSA limit returns to $5,000 for single filers and couples filing jointly, and $2,500 for married couples filing separately. Using a Dependent Care FSAIf you and your spouse are divorced, only the parent who has custody of the child(ren) can use FSA funds for child care. If you are married, both you and your spouse must work and earn income to qualify for reimbursement (unless one spouse is between jobs and actively looking, or is disabled and unable to work). If not, then the money you contribute to the account will be forfeited and you will be billed for the taxes due because you did not pay taxes on the amount in the first place. The Federal Flexible Spending Account Program (FSAFEDS) offers an app to help people with dependent care FSAs manage their receipts and claims. The program’s website provides in-depth information about what these care-specific FSAs can and cannot fund. The money in your FSA can only be used for expenses for:
Dependent care FSAs may not be used for private school tuition, but they can be used for summer day camps. Expenses That Qualify for FSA ReimbursementOnce you deposit money into an FSA, you can begin using those funds toward reimbursement for qualified expenses. You can only use the money for bills that meet the IRS definition of eligible dependent care service. This means that the services must be necessary for you and/or your spouse to work and earn an income. Qualified expenses include:
IRS Publication 503: Child and Dependent Care Expenses outlines expenses that qualify for FSA reimbursement. The IRS issued a statement notifying taxpayers that at-home COVID-19 tests and personal protective equipment (PPE) such as face masks and hand sanitizer are both considered eligible medical expenses that can be paid or reimbursed under FSAs. Expenses That Do Not Qualify for FSA SpendingRemember that you can only use FSA money for expenses that are necessary for you and/or your spouse to work and earn an income. Expenses that do not qualify as FSA-approved and therefore are ineligible in an FSA include:
Special Considerations for FSA Dependent CareBefore creating a dependent care FSA, you should consider the following:
What is a dependent care flexible spending account (FSA)?A dependent care flexible spending account (FSA) is a pretax 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. What expenses can I use a dependent care FSA for?You can only use the money for bills that meet the Internal Revenue Service (IRS) definition of eligible dependent care service. This means that the services must be necessary for you and/or your spouse to work and earn an income. What is the dependent care FSA limit For 2022?For 2022, the dependent care FSA limit is $5,000 for single filers and couples filing jointly, and $2,500 for married couples filing separately. The Bottom LineOpening and funding a dependent care FSA can help you plan and pay for the care you need to help you be able to work and earn a living. Consider looking into a plan offered by your or your spouse’s employer, and learn about how much you could save on taxes by taking advantage of this option. How much can a married couple contribute to a dependent care FSA?Can I still contribute the full $5,000 to the DCFSA even if my spouse is contributing to a DCFSA as well? No. Per IRS rules, the total that each family can elect for a Dependent Care FSA (DCFSA) must not exceed $5,000 per household ($2,500 each if married and filing separately).
What is the max dependent care FSA contribution for 2022?Dependent Care Flexible Spending Account
This account is used to reimburse you for dependent care expenses, such as child day care, elder care, etc. The contribution limits for 2022 are: $5,000 per year per household. $2,500 for married individuals filing a separate tax return.
How much can a married couple contribute to an FSA in 2022?It remains at $5,000 per household or $2,500 if married, filing separately. The minimum annual election for each FSA remains unchanged at $100. You may enroll in an FSA for 2022 during the current Benefits Open Season which runs through December 13, 2021, midnight EST.
Can both spouses claim dependent care FSA?For married couples, you and your spouse1 are each limited to the maximum contribution allowed by your Dependent Care FSA. Also, in accordance with Internal Revenue Service (IRS) rules: If you file a joint federal tax return, you and your spouse can contribute up to a combined total of $5,000 per year.
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