Do One Thing: Open a Dependent Care FSA (time: 10 minutes)

Kate Ashford  |  01:19 PM, Wednesday, June 22, 2011

Got kids? Paying for child care? Then you know it’s not cheap. (In fact, it’s the exact opposite.) But if your employer offers the option of a Dependent Care Flexible Spending Account (DCFSA), you can shave hundreds of dollars off the top by using pre-tax money to pay for some of it. In fact, if you’re paying for child care and not taking advantage of an available Dependent Care FSA, you’re just being silly. Stop being silly.

This is for you: If you’re paying child care expenses that enable you (and your spouse, if applicable) to work or go to school full time, and your employer offers a Dependent Care Flexible Spending Account as part of your benefits package. Not sure? Ask someone in human resources about the benefits available to you.

What it means: When you use a Flexible Spending Account, the money is pulled from your paycheck before taxes, and you can then apply that money toward eligible expenses. You save money because you don’t have to pay taxes on that cash. How much you save will depend on your personal tax situation. Try this calculator for an estimate.

Hands-on-time: 10 minutes or less to complete the form, plus time to fill out forms and submit receipts for expenses throughout the year

Total time: A few weeks until your Dependent Care FSA becomes active (usually January 1)

Cost: $0. You will save money doing this.

When to do it: During your company’s open enrollment period, which typically happens in the fall.

There are rules. Lots of rules.

• You and your spouse must be gainfully employed, self-employed, unemployed but actively looking for a job, or full-time students. If you’re a single parent, you must have custody of the child.


• Expenses must be for dependents age 12 or younger (or an older dependent, such as an elderly parent or ailing spouse, who isn’t capable of caring for himself).


• Expenses may include incidental household services related to care of a dependent, actual care of the dependent (inside or outside of the home), and preschool tuition.


• Expenses may not include schooling for kids in kindergarten or older, overnight camps, or a babysitter while you go out for dinner and a movie. (Alas.)


• You can’t be reimbursed for money paid to one of your dependents (to watch a younger sibling, say), or your spouse. And if you use a daycare center that watches more than six kids, it must have a license.


• You’ll have to provide the daycare provider’s Social Security Number (or Employer ID Number) when you file your taxes.

What you’ll need:

• The correct form or website from your human resources department
• An idea of how much you want to contribute on an annual basis

What to do:
1. Watch for your company’s open enrollment period, which typically happens for about a month in the fall. Exceptions: If you’ve just joined a company of you’ve had what’s called a “Life Event” (you had the baby for which all these expenses will occur, for instance), you may be able to start or change a Dependent Care FSA at a different time. Contact your HR department with questions.

2. Estimate how much you’re going to spend annually on eligible expenses. The maximum amount you can choose to put into a DCFSA is $5,000 per household (so you and your husband can’t both set aside $5,000), or $2,500 if you’re married filing separately.

3. Fill out your company’s form (paper or online) to establish an account.

4. Once the account is established and active (January 1), be sure to keep track of your receipts for eligible expenses. You’ll generally have to submit them (or copies of them) to claim your DCFSA money.

5. You can submit claims for expenses throughout the year, or once you hit $5,000—whatever’s easiest. The form does require your dependent care provider’s signature and tax ID number, however, so it may be easiest to do it all at once.

To learn more:
Dependent Care Flexible Spending Account (Fsafeds.com)
Flexible Spending Accounts Vs. Dependent-Care Credit (Kiplinger’s)

Did you do it? Tell us what worked or share other tips in the comments below.