With schools set to reopen in the fall, parents will need to make many arrangements, including purchasing supplies, child care for kids not at school age, and more. Our payroll partner GTM Payroll Services’ software provider, isolved, offers this look at how dependent care FSAs can assist with costs associated with returning to the classroom.
The new school year is right around the corner, which means that parents are busy purchasing supplies and making care arrangements for their children. Those with a dependent care flexible spending account (FSA) may be wondering if any of their funds can be used on things like tuition, day care or even back-to-school supplies.
To provide some insight into dependent care FSAs, isolved Benefit Services’ Vicki Burke is answering common questions associated with leveraging this pre-tax benefit account. Find out what you need to know by reading the Q&A below:*
1. What is a dependent care FSA and how is it different than a health care FSA?
A dependent care FSA allows participants to use pre-tax dollars to cover eligible work-related dependent care expenses for qualified dependents, or if you are married, while you and your spouse work or your spouse attends school full-time. This is different than a health care FSA, which is used for out-of-pocket medical expenses. Employees also have access to their full election amount day one of the plan year with a health care FSA, while dependent care FSAs require funds to be taken out of the paycheck before they can be used.
2. What are some common misconceptions about dependent care FSAs?
There are many misconceptions, including that you need to have a day care facility before you can use a dependent care FSA and that your provider must be 18 or older. You can actually be reimbursed for expenses of an individual providing care for your dependent as long as the expenses are incurred for you and your spouse (if married) to work, look for work or attend school full-time.
Another common misconception is that tuition can be reimbursed. Tuition for kindergarten and above is not reimbursable – and neither are expenses paid for overnight camps.
3. What are the benefits of using a dependent care FSA to pay for qualified expenses, like day care?
The biggest benefit of using a dependent care FSA is that it allows you to use pre-tax dollars to pay qualified out-of-pocket dependent care expenses. The money you contribute to a dependent care FSA is not subject to payroll taxes, so you end up paying less in taxes and taking home more of your paycheck.
4. Can dependent care FSAs be used to offset costs associated with kids returning back to school (supplies, tuition, before or after school care, etc.)?
Although dependent care FSAs cannot be used for school supplies, these dollars can be used for before and after school care.
5. Is there an age limit for who dependent care FSAs can be used to support?
A dependent care FSA can be used to support expenses for dependents under the age of 13. Adults may also qualify as a dependent if they live with you and you are providing more than half of the individual’s support for the year.
6. What happens if all of the money within a dependent care FSA is not used within the calendar year?
This depends on the employee’s employer. For example, the employer may have a runout or grace period, but after that time has exhausted any funds left over are forfeited back to the employer.
7. How are employees reimbursed for dependent care expenses?
Expenses are eligible for reimbursement when they have been incurred, not when they are billed or when the service is being paid. For instance, if your day care provider requires you to pay for the month of September on September 1, you can be reimbursed as the services are incurred, not when you pay for the services. You can submit claims after each week, every two weeks or October 1.
If you submit claims for expenses that are greater than the current dependent care FSA balance, you will only receive reimbursement for the amount that has been contributed. The excess amount of expenses will be pended and automatically paid as contributions are posted to your account.
8. What tips would you provide someone who is managing a dependent care FSA?
The best tip I would offer is to make sure you calculate your dependent care correctly. This includes factoring in how many weeks will you actually need day care, etc. Also make sure to take into account any vacation time you or the provider has so you do not overestimate how much money you need to set aside.
What are your back-to-school plans? Will you need help getting the kids to school in the morning? How about after-school activities? Or are you doing in-home learning? We can help with all of it! Contact us at (518) 348-0400 and let us know what you need for child care, senior care, housekeeping, and more.