TECHNICAL GLOSSARY

Dependent Care FSA: Definition, Usage, and Rules

The Dependent Care Flexible Spending Account (FSA) is a pre-tax benefit that allows employees to contribute money to pay for qualified dependent care expenses. Qualified expenses may include expenses incurred for eligible children under 13 years of age or disabled dependents who reside with the employee. By contributing to a Dependent Care FSA, employees can benefit from the tax savings associated with taking care of children or dependents.

How a Dependent Care FSA Works

1. Open Enrollment
   This is the annual period in which employees may enroll in a Dependent Care FSA or change their elections throughout the year.
2. Pre-Tax Contributions
   Employees may determine how much of their salary they wish to contribute each pay period. The amount of money contributed is deducted from their pay before calculating FICA (Federal Insurance Contributions Act taxes), and therefore reduces the employee's taxable income.
3. Eligible Dependent Care Expenses
   There are many different types of eligible expenses that can be paid for with FSA funds. Some types of activities that can be eligible for this program include:
   • Daycare centers or home-based caregiving for children under the age of 13
   • Care for an adult dependent who has a disability
   • Before-school/school transitional care
   • Summer day camps (excluding overnight camps)
4. Submitting Claims and Getting Reimbursed
   After an employee has incurred an eligible expense, the employee will submit a claim to the FSA administrator. The administrator will verify the claim, and will reimburse the employee using funds withdrawn from pre-tax wages from any FSA funds that the employee has contributed.
5. "Use It or Lose It"
   Funds in a Dependent Care FSA account cannot be carried over into the following plan year. Any contributions that were made during the current plan year that are not used before the end of the plan year will be considered to be forfeited unless the employee's employer provides a short grace period.
6. Renewal
   Employees will have to re-enroll every year in order to participate in the FSA for the following plan year.

Eligibility Rules

• Divorced mothers/fathers who hold legal custody of their kids may use their Flexible Spending Account (FSA) for spending toward child care expenses.
• A child care expense reimbursement cannot be claimed if both spouses do not work unless one spouse does not work, looking for work, or is unable to work because of a disability.
• A person who does not qualify pursuant to these guidelines may forfeit contributions to an FSA and become personally responsible to pay taxes on any unqualified distributions.

Benefits of a Dependent Care FSA

• Reduces taxable income with pre-tax contributions
• Helps cover essential child or dependent care costs
• Simplifies budgeting for dependent care expenses