Dependent/Child Care Spending Account

What is it and who is eligible to participate?

The Dependent Care Flexible Spending Account under IRC Section 125 allows you to avoid both FICA (7.65%) and Federal Income Tax (15%, 28%, 31%) on qualifying child and dependent care expenses.

In order to participate in this plan, you, the employee, and your spouse if you are married, must meet the following:

  • The care for which you are paying must be for one or more qualifying dependents.
  • You must keep up a home that you reside in with the qualifying dependent(s).
  • You must have earned income during the year unless your spouse is a full-time student is unable to care for himself/herself.
  • Your dependent care expenses must be incurred so that you can work or look for work.
  • The payments you make for dependent care must be to someone you or your spouse cannot claim as a dependent.
  • Your care provider must be identified on your tax return when you file your federal income tax.
  • When filing your income tax, your filing status must be single, head of household, qualifying widow(er) with dependent child, or married filing jointly. You must file a joint return if you are married or meet the "Joint Return Test" rule described in IRS Publication 503 - "Child and Dependent Care Expenses."
What dependents are eligible under this plan?
  • Your dependent under age 13 whom you can claim as a dependent for income tax purposes.
  • Your spouse who is physically or mentally unable to care for himself/herself.
  • Your dependent who is physically or mentally unable to care for himself/herself, and for whom you can claim as an exemption for income tax purposes.
  • Your child even if you cannot claim him/her as an exemption on your income tax, if you are divorced or separated and you are the custodial parent. You are considered divorced or separated if either of the following applies:
  1. You are divorced or separated under a decree of divorce or separate maintenance or a written separation agreement, or
  2. You lived apart from your spouse for all of the last 6 months of the year.
How much can I have withheld from my paycheck as a participant?

Pre-tax reimbursements of qualified dependent care expenses cannot exceed a certain amount during the plan year, and the maximum is the lowest of the following:

  • Your earned income (including self-employment wages) for the plan year;
  • Your spouse's earned income for the year; or
  • $5,000 ($2,500 if married and filing separate income tax returns)

There is a special rule in the case of spouses who are full-time students or physically or mentally unable to care for themselves.

  • If your spouse meets either criteria, you may contribute up to $2,400 per plan year if you have one dependent, or up to $4,800 if you have two or more dependents.

If you and your spouse participate in separate dependent care spending accounts...

  • the maximum you may contribute to both plans is a combined $5,000.

For purposes of this plan, a person is considered married if he or she is married at the end of the plan year.

How did I get reimbursed for eligible expenses?

The IRS regulations require you to provide:

  • The date(s) care was provided or incurred.
  • The cost of the care.
  • Your care provider's name and tax ID number.
  • A signed receipt or invoice from your provider. Canceled checks are not valid receipts.
  • A completed form requesting reimbursement that is submitted to your Dependent Care Flexible Spending Account administrator.

You must also file IRS Form 2441 with your federal tax return at the end of the year to report your dependent care provider(s) tax ID number(s). Otherwise, your reimbursements may be declared as taxable income by the IRS.