Pre-Tax Accounts Series- DCFSA's
MAY 8TH, 2020
Welcome to Pt. 2 of the Pre-Tax Accounts Series! Let’s cover DCFSA’s!
What is a DCFSA?
A Dependent Care Flexible Spending Account is pre-tax benefit account used to pay for dependent care services while you are at work, looking for work or attending school full-time.*
DCFSA’s are not healthcare expense accounts!
Major benefit of DCFSA’s.
DCFSA’s are a pre-tax benefit, which means that the money you contribute to a DCFSA is not subject to payroll taxes, which means you will OWN MORE OF YOUR CHECK! Participants save an average of 30% in taxes by using DCFSA’s vs. paying for daycare out-of-pocket. 30%, THAT’S MAJOR!
Who qualifies as a dependent?
Children under 13 years old and adult dependents who can’t take care of themselves. The dependents must live with you and be claimed as a dependent on your tax return.
Eligible dependent care services covered under DCFSA’s…
There are so many dependent care services covered under DCFSA’s. For the most accurate information, contact your provider and check your plan benefits. For now, check out the link at the end of this blog post.
What are the annual contribution limits?
The annual contribution limit for individuals and married couples filing jointly is ~$5,000 and ~$2,500 for a married person filing separately.
How does a DCFSA work?
During your employers annual enrollment period, you apply/enroll for a DCFSA. You must have a qualified dependent and meet all other requirements.
There are exceptions for enrolling in DCFSA’s other than your employers annual enrollment period. Some exceptions include: marriage, divorce, legal separation, birth of a child, adoption of a child and change in tax dependents that may impact your need for care or the cost of care, the cost of coverage rules permit changes when you have a change in cost, a need for care, or a daycare provider. (wageworks.com)
You select the amount of money that will be deducted from your paycheck and deposited into your DCFSA for the entire year. This will be an equal amount during the year.
For example, if you choose for your employer to deduct $4,000 per year and you get paid bi-weekly. Your employer would deduct ~ $167 per paycheck and deposit that amount into your DCFSA.
Once you have funds available in your DCFSA, you can use those funds to pay for eligible expenses.
You must submit receipts to your DCFSA provider, as proof of care. Ask your provider what information needs to be on the receipt. Every DCFSA is unique in the fact that there are various methods to submit receipts, manually and electronically.
It’s 2020, so many DCFSA’s let you submit receipts electronically through an app.
DCFSA’s are a use-it-or-lose-it account. You MUST use all DCFSA funds at the end of the calendar year or your money will be FORFEITED!
How do you pay for eligible care?
There are two options:
You can be reimbursed into your personal bank account, for eligible expenses that you paid for out-of-pocket, once the funds are available in your DCFSA.
You can have your DCFSA paid to your provider directly.
Generally, you need to submit the individuals SS# or the daycare providers Tax ID #.
Here’s a list of eligible DCFSA expenses. Again, check with your employer for your specific benefits.
My thoughts on DCFSA’s…
They’re friggin’ amazing!!
My AGI(adjusted gross income) has been lowered because of DCFSA’s and other pre-tax accounts, which save me money on taxes!
I save tons of money!!! And I can use more of my money to eliminate my debt and OWN MY CHECK!
I max-out my DCFSA because the amount that I pay for childcare exceeds the limit of $5,000/year.
With my employer the reimbursement process is easy and seamless!
My daycare provider signs her signature on my DCFSA app and adds her Tax ID #. I input the dates of care for the entire year and submit. I automatically get DCFSA reimbursements on a bi-weekly basis. EASY PEASY!
Do you use a DCFSA? If so, what do you like/dislike? Was this information helpful? Let me know in the comments below or on Instagram or Facebook!
**Check with your employer for rules on qualifying for DCFSA’s while your spouse is working or attending school full-time.**