DEPENDENT CARE ACCOUNTS

What is a Dependent Care Account (DCA)?

A Dependent Care Account is a type of Flexible Spending Account (FSA) that lets you use pretax dollars to pay for eligible expenses related to care for a qualified dependent, so you or your spouse can work, look for work or attend school full time.

 

What is the difference between the health care account and the dependent care account?

Health care accounts cover doctor’s office visits, physical exams, hospital care, prescriptions, etc.

Dependent care accounts cover licensed daycare, elder care, preschool programs, etc.

 

What is the differences between a Dependent Care Account (FSA) --and-- Dependent Care Income Tax Credit?

1)  Income - With a FSA Plan, the minimum savings will be approximately 27.65% of each dollar spent.  With an income tax credit,  the savings will vary from 20 to 35%, based on your income with the higher your earnings, the lower your tax credit.

2)  Expense Limits - With a FSA Plan, the maximum pre-tax contribution may not exceed $5,000 per year, regardless of number of children.  With an income tax credit, the maximum credit for one child is $3,00 per year, or $6,000 for two or more children.

3)  Timing - By participating in the FSA Plan, the savings will be realized immediately.  Conversely, the savings by taking the income tax credit is realized only when you file your annual tax return.

 

How do I do I sign up to participate in FSA Plans?

Consult with your employer as to their procedures, contribution amounts and limitations.

 

Can I change my annual contribution amount during the plan year?

You can change your contribution amount during the plan year only if you have a change in employment status or family status (e.g., marriage, divorce, or the birth of a child).

 

My daughter goes to overnight camp during the summer.  Is this an eligible FSA expense?

No, overnight camps are not considered eligible FSA expenses.  

Day camp expenses can be eligible dependent care FSA expenses if there is no overnight stay.

 

What happens to the money in the FSA if I don’t use it all in one year?

The IRS has a “use or lose” rule for FSAs.  This rule states that you’ll lose any unused money still in your account at the end of the plan year.  Because you receive a tax break on your contributions, the IRS requires that any contributions that are not used during the plan year, or during the following grace period, must be forfeited and cannot be used in a later plan year.

 

How do I keep track of my dependent care balance?

Whenever you request reimbursement from your FSA, Integrity Administrators will send you an explanation of benefits (EOB) statement.  The EOB will let you know how much was reimbursed from your FSA and the remaining balance.  You can check your FSA balance online at integrityadmin.com.  You will need to register to view your account – simply follow the online instructions.  It’s free, secure and easy!  You can also view your EOBs online.

 

 

What if I need help --or-- have more questions?

Integrity Administrators are here to help.   

Just call our Customer Service Department at 1-800-562-9383,

and we will help you with your questions.

 

Some additional points to consider:

-  You will save federal, state, Social Security and Medicare taxes when you participate in a Dependent Care Account

-  To the extent you reduce your Social Security tax, you may also reduce your Social Security benefits

-  Participating in a Dependent Care Account will not affect your eligibility for the Earned Income Credit (EIC), as it is not

         included in the definition of Earned Income for the EIC

 

Example:  

Using a Dependent Care Income Tax Credit, a married couple who jointly earn $40,000 will save 22% of each dollar earned.

Using a Dependent Care Account, a married couple who jointly earn $40,000 will save 27.65% on each dollar earned.

So, if family's daycare expenses total $4,000/year, that would yield a savings of $880 (tax credit) --or-- $1,106 (DCA).

Frequently Asked Questions

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