Are you using a dependent care flexible spending account through your employer? Get to know how a dependent care FSA works and see if it is right for you.
What is a Dependent Care Flexible Spending Account?
A dependent care flexible spending account, or dependent care FSA, is an account that an employer permits an employee to establish. An employee with this account can have before tax earnings withheld from his paycheck and put directly into his dependent care FSA.
In the fourth quarter of the year, employers require their employees to decide whether or not to participate in this kind of FSA. Employees also decide how much money is to be taken from each paycheck and put into the FSA. Employees can get more affordable dependent care option because their FSA money is not taxed.
How Does a Dependent Care FSA Work?
After an individual pays a dependent care related expense, he needs to notify the administrator of his dependent care flexible spending account that he wants to be reimbursed. The covered individual then completes an FSA claim form that is approved by his employer and sends it with an expense receipt to the FSA program address.
Once the FSA program administrator has the claim, he needs to verify that the form and receipt are properly filed. The receipt needs to be dated in a covered period and must be for an allowable expense. The flexible spending account program pays back the employee if his dependent care expense is covered. The employee gets payment in the mail or through direct deposit into his bank account.
If an individual will only have one thousand dollars deposited into his FSA in a year, then the amount of expenses that he can be reimbursed cannot exceed one thousand dollars during the year. The employee loses any remaining balance in his account that has not been claimed properly with a valid expense.
What Types of Expenses are Covered by a Dependent Care FSA?
A dependent flexible spending account covers dependent care expenses such as child care before school and after school care. Tuition is not covered. Day camp and private sitter child care fees are covered. Arts and crafts, music lessons, and swimming lessons that are offered by a day care provider are covered by a dependent care FSA. Placement fees for an au pair are covered.