The Healthcare Flexible Spending Account may be used to reimburse eligible expenses incurred by you or your dependents, as long as the expenses are not covered by insurance or any other source. The maximum amount that you may contribute to your Healthcare Account for each plan year is $2,700. The Health Care Flexible Spending Account is advantageous when you have predictable healthcare expenses.
You can refer to IRS Publication 502, Medical and Dental Expenses to identify eligible expenses. This publication can be found on the Internal Revenue Service’s website found here or by calling 1-800-TAX-FORM.
Dependent Care Expenses
The Dependent Care Spending Account may be used to care for a dependent in your home or someone else’s home; childcare or dependent care facilities, including day care centers and nurseries; or Housekeeping services in your home that include day care.
However, you cannot claim payments for services provided by a dependent or one of your own children under the age of 19.
Dependent Care and the Federal Tax Credit
If you have eligible dependents, you may choose to use either or both the Dependent Care Flexible Spending Account and the Federal dependent care tax credit when you file your annual tax return. Whatever you contribute to the Dependent Care Spending Account will reduce the amount of the available Federal tax credit.
The annual maximum the IRS currently allows you to contribute to a Dependent Care Account is $5,000 for single individuals and married individuals filing jointly, and $2,500 for married individuals filing separately.
You are eligible for a Federal income tax credit of up to $3,000 of eligible dependent care expenses for one qualified dependent (up to $6,000 for two or more qualified dependents). The amount of your tax credit depends on your adjusted gross income reported on your Federal income tax return.
You must decide whether using the Dependent Care Flexible Spending Account or taking the Federal dependent care tax credit for your dependent care expenses will provide you with more tax savings. If you are uncertain as to which is best for you, we recommend that you check with a tax advisor before making your final decision.
Who May Participate in the Dependent Care Spending Account Plan?
If you are married, your spouse must work, be a full-time student or be mentally or physically unable to care for him or herself in order to be eligible to participate in this plan. You may also participate in this plan if you are not married and incur eligible dependent care expenses.
IRS Publication 503 explains the child and dependent care tax credit in more detail. You can obtain a copy of this publication from the Internal Revenue Service’s website found here or by calling 1-800-TAX-FORM.
If you choose to participate in the Healthcare and/or Dependent Care Spending Account, your contributions will be made through payroll deduction and will be made on a “before-tax” basis. This means that contributions to this plan will be deducted from your pay before taxes and are, therefore, tax-free. This will increase your net take-home pay since Federal, State and FICA taxes will be reduced.