It’s summertime! Children are out of school and ready to go to camp. Want to know an easy way to save some money?
A Dependent Care Flexible Spending Account (FSA) is a great way to lower taxable income and pay for childcare or day camp during the summer. If you are paying for childcare and not enrolled in a Dependent Care FSA, you are losing valuable money. By enrolling in a Dependent Care FSA plan, you will elect an annual amount in accordance to IRS regulations. Money will then be withheld each pay period on a pre-tax basis. You can use those funds to reimburse yourself or pay for child care. The savings can be up to 30% based upon your tax rate.
Below are a few regulations to keep in mind:
- The IRS limits the contribution amount to $5,000 per year for those who are married and file jointly. If you are a single parent or married and file separate returns, the contribution amount is $2,500 each.
- Eligible dependents include:
- A dependent who is 13 years of age or younger.
- A spouse who is unable to work and care for themselves.
- Another adult dependent who is unable to care for themselves and is claimed as a dependent on your taxes.
- Dependent Care expenses must be work-related, meaning you must be working or looking for work.
- Expenses may qualify if they are:
- Summer day camps
- Before or after school care
- In-home care
- Make sure to elect the appropriate amount you plan to use. Dependent Care FSA plans are use it or lose it. This means, any remaining funds in your account at the end of the year will not roll over to the next plan year and will be forfeited.
- All expenses must be incurred during the plan year to be eligible for reimbursement.
For more information on child and dependent care expenses, review the IRS publication 503.
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