The dependent care account reimburses dependent care expenses necessary while you (and your spouse, if you are married) are working on a full-time basis or attending school full-time. Typically this includes day care expenses for children, but you can also use this account to reimburse day care expenses for other dependents.
An eligible dependent is someone who spends at least eight hours a day in your home and is one of the following:
- A child under the age of 13 whom you can claim as an exemption for income tax purposes.
- A dependent under the age of 13 of whom you have custody for more than half of the year if you are divorced or legally separated.
- A dependent who is physically or mentally incapable of self-care (regardless of age).
- Your spouse who is physically or mentally incapable of self-care.
You may elect a dependent care spending account during the Annual Open Enrollment. The amount that you contribute cannot be changed during the plan year unless you experience a qualified change in status. If you do not enroll during open enrollment, you will not be able to enroll until next year’s open enrollment unless you experience a qualified change in status.
Contributions to a dependent care flexible spending account are deducted from an employee’s payroll on a per pay basis.
|Account||Minimum Monthly Contribution||Maximum Monthly Contribution|
|Dependent Day Care||$10.00||
- Nursery care
- Before-school and/or after-school care
- Day camp
- Elder day care
Not Eligible Expenses
- Dependent health care expenses
- Dependent care for children age 13 or older (unless disabled)
- Overnight camp
- Babysitting that is not work
- Related School costs for kindergarten and higher grades (e.g., tuition for private schools)
- Long-term care services (e.g., nursing homes)
For information on submitting claims for reimbursement, please see our Flexible Spending Account Reimbursement page.
- By IRS rules, married individuals who file separate tax returns are limited to a $2,500 contribution annually.
- You may contribute up to $5,000 if you are married and file a joint tax return, provided both you and your spouse each earn more than $5,000 annually.
- If one of you earns less than $5,000 during the year, you are limited to a maximum spending account contribution equal to the salary of the lowest-earning spouse.
- Time spent by a student spouse in educational endeavors is considered working for the purposes of opening an FSA. Volunteer work does not qualify.
- If both you and your spouse work at the University of Pittsburgh, you must coordinate your dependent day care enrollments so that the two of you together stay within the $5,000 annual maximum.
- You may only claim dependent care expenses on children age 12 and younger, unless the dependent is disabled.
- Employees may continue contributions for dependent care expenses under an FSA while on FMLA leave. While there is a safe harbor provision for short-term temporary absences that do not exceed two weeks, such as vacation or short-term illnesses, there is no such exception for longer absences such as those covered under FMLA. Therefore, employees on FMLA leave for longer than two weeks cannot claim reimbursements for expenses incurred during their absences.
Tax Credit Versus Spending Account
Is it more advantageous for you to take the tax credit for dependent care expenses OR to pay for these expenses through a dependent care FSA? You cannot claim the same expenses both ways.
- Tax Credit: As income increases, the tax credit becomes less valuable. You may claim up to $2,400 in dependent day care expenses for one dependent or $4,800 for two or more dependents. Your actual tax savings, however, depends upon your income. For example, a family with taxable income of $10,000 is eligible for a 30 percent credit, giving them a $750 savings on $2,500 of expense. Meanwhile, a family with taxable income of $28,000 would receive only 20 percent credit for the same expense, giving them a $500 savings on $2,500 of expense. Remember, taxable income is your income after you have subtracted exemptions and deductions.
- Dependent Care FSA: Reimbursement of dependent care expenses through an FSA becomes more valuable as family income increases. The crossover income level at which the advantages of both methods are about equal (in terms of federal income and Social Security taxes) occurs at $24,000 of adjusted gross income. Use this general rule as a guideline only!
Please contact your tax advisor to determine which is better for you.
The grace period for submitting dependent day care claims against the dependent day care flexible spending account (FSA) is 6 months. All dependent day care claims incurred from July 1-June 30 must be submitted for reimbursement no later than December 31st. For example, dependent day care claims incurred between July 1, 2017-June 30, 2018 must be submitted to UPMC with supporting documentation by December 31, 2018.
|Plan Year||Claims Incurred||Claim Filing Grace Period||Claim Filing Deadline|
|2017||July 1, 2016-June 30, 2017||6 months||December 31, 2017|
|2018||July 1, 2017-June 30, 2018||6 months||December 31, 2018|
|Future Plan Years||July 1-June 30||6 months||December 31|
“Use It or Lose It”
Careful planning is required. FSAs must comply with federal law. There is a "use it or lose it" provision. What is not used for services and expenses incurred during a Plan Year or the 2 1/2 additional month extension (e.g. until September 15 for the plan year that ended June 30) and not claimed by the end of the grace period, are forfeited and remains in trust to be used only for operating costs of the FSA program.
Note: Status of unused funds if incomplete participation in plan year
Expenses during the Plan Year are not eligible if incurred after termination, suspension or for a leave, or cancellation for a family status change. Termination of employment is distinguished from suspension for a leave, family status change, or other employment circumstance for which other “make-up” contributions may be made to activate participation for access funds.