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Dependent
Care Spending Account (DCSA)
Questions & Answers
An IRC Section 125
Flexible Spending Account (FSA) offers a tremendous opportunity to reduce
your taxes by paying for unreimbursed Dependent Care expenses using
pre-tax dollars. A Dependent Care expense refers to day care for children
under age 13 or day care for a disabled spouse, dependent, or elderly
parent who lives with you at least eight hours a day. Dependent Care
expenses must be necessary for you and your spouse (if applicable) to
work. When you use pre-tax dollars, you will reduce your taxable income.
Thus, you save federal, state (in most states), and Social Security
taxes on every dollar you deposit into your Flexible Spending Plan.
We have highlighted the most frequently asked FSA questions below so
you can better understand the tax benefits of this program!
Note: This
FAQ discusses specific DCSA questions. You should also read the FSA
FAQ for answers to more general questions.
Can
I change my elections in the Section 125 Plan at anytime during the
plan year?
What are eligible dependent care expenses?
Is it better to utilize the Flexible Spending
Account or the federal income tax credit for dependent care expenses?
How often will my claims be reimbursed?
How will I know the balance in my Flexible
Spending Account?
Can
I change my elections in the Section 125 Plan at anytime during the
plan year?
No. You cannot
change your election during the plan year, except in the event
of specified status changes. For purposes of Dependent Care Spending
Accounts status changes are changes in relation to:
- Legal
Marital Status. Events that change your legal marital status,
including the following: marriage, death of your spouse, divorce,
legal separation, and annulment.
- Number
of Dependents. Events that change the number of your dependents
including the following: birth, death, adoption, and placement for
adoption.
- Employment
Status. Events that change your employment status or the
employment status of your spouse or dependent including: a termination
or commencement of employment, a strike or lockout, a commencement
of or return from an unpaid leave of absence and a change in work
site.
- Dependent
Satisfies or Ceases to Satisfy Eligibility Requirements.
Events that cause your dependent to satisfy or cease to satisfy
eligibility requirements for coverage on account of attainment of
age, student status, or any similar circumstance.
- Change in
Cost. You may choose to increase your contributions in the event
that the provider of services increases their fees during the plan
year, as long as the provider of services is not a relative. Conversely,
should you choose to remove your dependent from child care or the
need for child care decreases, you are allowed to decrease your
Dependent Care Spending Account election accordingly.
Unless you
are subject to one of these qualifying events, your election is
irrevocable for the plan year. If you experience one of the changes
noted above, you are allowed to modify your election within 30
days of the event. Your election change must be consistent with
the status event that occurred.
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What are eligible dependent care expenses?
This Plan
follows IRS guidelines which allow you to use pre-tax dollars
to pay for day care services provided to your children under age
13, as well as an incapacitated parent or spouse. You are eligible
if you are a single working parent, you have a working spouse,
your spouse is a full-time student for at least five months during
the plan year while you are working (refer to the earned income
limits for specific contribution levels), or your spouse or dependent
parent is disabled and unable to provide for his or her own care.
Eligible expenses
include services provided: (a) inside or outside of your home
by anyone other than your spouse, another one of your dependents,
or one of your children under 19 years of age, (b) by a child
care center, or (c) by a housekeeper whose services include dependent
care. Day camps are eligible for reimbursement; overnight camps
are not eligible.
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Is
it better to utilize the Flexible Spending Account or the federal income
tax credit for dependent care expenses?
Your individual
circumstances and income will determine whether the federal, state
(where eligible) and Social Security tax savings under the Dependent
Care Spending Account provide greater tax benefits than using the
federal tax credit. Since individual tax situations vary, it is important
for you to select which approach offers more favorable tax savings.
Contributions to the Dependent Care Spending Account reduce your federal
tax credit availability. As of January 1, 2003, you may combine the
Dependent Care Spending Account with the tax credit availability amount
to a maximum of $3,000 for one dependent and $6,000 for two or more
dependents.
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How often will my claims be reimbursed?
Claims will
be reimbursed on a predetermined schedule. Refer to your "Plan
Highlights" for your particular schedule.
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How
will I know the balance in my Flexible Spending Account?
View
your balance online! In addition, ProBusiness Administrative Services
will furnish quarterly statements detailing your account balances,
and you can call the toll-free telephone number, 800-269-0020, to
access this information.
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