Dependent Care Benefits & Withholding

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Parent Q&A

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  • FSA childcare reimbursement during COVID?

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    Nov 18, 2020

    Hi parents,

    The current list of eligible FSA childcare expenses does not include online/Zoom activities. What creative ways are you using to get back your own pre-tax use-it-or-lose-it money given the pandemic restrictions on in-person activities? (Our son is 13, so babysitting isn’t really an option.) Thanks in advance!

    Nov 18, 2020

    Our FSA has accepted online activities (camps and classes during the workday) with no issue, so I would not assume that's not an option--it's certainly worth a try! The bigger issue, though, is that you can only use dependent care FSA money for a child under age 13--so assuming you don't also have a younger child, you can only claim expenses that were before your child's thirteenth birthday. There was an option in 2020 to reduce your FSA contribution under a one-time IRS rule change, but unfortunately at this point it's too late to take advantage of that. I would look for any expenses you may have had earlier in the year while your child was still eligible and get as close as you can. 

    Nov 25, 2020

  • Daycare FSA

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    May 14, 2018

    Hi,

    I am enrolling my daughter at CEC daycare in Berkeley for the last few months of 2018. Has anyone had any experience using a daycare FSA with CEC or other daycare? Do you need the daycare to provide some kind of formal receipt to get reimbursed?

    Also - I have to pay a $500 deposit plus last month of care in advance. Can I apply either or both to the amount of my FSA reimbursement? I'm not sure I will need the full $5000 this year since it will only be two months of care. Thus, whether I can apply the deposit and last month advance pay matters in my case.

    Thanks,

    Erika

    May 14, 2018

    We're at CEC! They email an invoice every month and that's what I've been using to get reimbursed - it has been working for me.

    Not sure about your other question I would guess that anything that goes toward care in 2018 can be paid for with the FSA - so your last month's advance, probably not. But I don't know for sure.

    May 16, 2018

    Hi Erika, I have used DCFSA (dependent care FSA) for daycare and preschool. The daycare was an in home center and the preschool was at a facility center. You need the daycare to provide a formal receipt to get reimbursed. The receipt must include the tax ID number, your child's name, dates and type of service, and the amount billed. The CEC should know what to provide. I'm not sure about the deposit being applied to the reimbursement. You would need to contact the company that handles your FSA account. 

    May 16, 2018

    You will need a receipt from the daycare that includes their Tax Id number. 

    You can only be reimbursed for daycare expenses after the care has happened, so you won't be able to get reimbursed for the last month until you use it. I run into this every year with summer camps - I sign up for some in January and February either to get early bird discounts or because they are really popular, and I can't get reimbursed until my kids attend the camp in the summer.

    May 16, 2018

    I believe you can submit the deposit, but not the last month care. You only can submit FSA for the month or care that already passed and deducted from tour paycheck. Ex: in May, after April FSA deducted from your paycheck, you can submit reimbursement for April. You will need receipt and day care tax id number on the receipt.

    May 16, 2018

    Hi Erika,

    I just started using one myself. Different daycare but I believe the process is the same.  You submit signed receipts from the daycare (or babysitter) for care that has already happened.  These accounts don't pay out for future service.  If you submit more bills than you currently have funds in the account, they will just accrue the debt and pay out gradually as your paycheck feeds into the account.

    So far the whole process has worked smoothly for me.

    Liz

    May 16, 2018

  • Dependent Care FSA - how to estimate?

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    Sep 27, 2017

    howdy all!  my wife and I are expecting our first in just a few weeks :)  i had an insurance question that came up and wanted to ask the group :)  we may have a dependent care FSA available to us through insurance, that allows for up to $5K of childcare expenses to be tax deductible, but i have no idea how much of child care expenses i should think about planning for!  these are 'use it or lose it dollars', so i wouldn't want to allocate more than we used.  

    any thoughts or guidance on how much child care expenses to plan for in 1st year?  in our case, we think our childcare needs won't be regular, at most a day a week once my wife goes back to work in 4-5 months. no worries if this isn't something that you can speak to, but thought i'd ask!

    Sep 27, 2017

    Depends on the city and the type of daycare facility, but $10/hr is what we paid in Albany. You can do the math. 

    Oct 4, 2017

    You have until March or so of the following year to use up any leftover funds from the previous year. Even if you only plan to use childcare for one day/week I think you can easily spend more than $5k throughout the year. Just doing the math, 8 hours/week at $20/hour and 52 weeks is $8,320/year.

    Oct 4, 2017

    The most important thing to be aware of: You can only use FSA money for a caretaker that you pay above the table, i.e. with tax withholding, social security, the whole nine yards. Or of course for a licensed daycare, a private school or a summer camp. Pretty much the recipient of you money needs to file taxes and you need to have their SSN/Tax-ID. As it sounds like you are more looking for the occasional sitter than a regular household employee, you might only find candidates that will only work under the table.

    Oct 4, 2017

    My son's daycare for infants was $437 a week, M-F, 6:30 to 6:30. We used the $5k to cover 11 weeks worth of coverage for him. 

    I think you'll get better responses if you can include the type of care you plan to use and how many hours of it on that one-day-a-week.

    Oct 4, 2017

    Have you looked into who might provide your childcare? If you can identify potential providers then you can ask their rates to get a better estimate When my kids were in full-time infant care at a home daycare in El Cerrito the part-time kids were charged about $70-80/day. I believe going rate for nannies watching one child in our area is $20/ hour. Costs could be more or less in your city. Usually you will pay more on an hourly bases for part-time care than full-time. So if you anticipate a day of week of care for 10 months next year (assuming your wife goes back in February) that might put you in the annual cost range of anywhere from $3,000 - $7,000 depending on local going rates, daycare vs. nanny, and how many hours a day you might need a nanny. As you can see, that $5,000 allowance gets eaten up fast!

    So my advice is look at providers in your area for cost and availability, calculate out the minimum number of days you think you will need care (4x times a month, 2x a month, etc.) and then use that figure. If you are worried about not using it all, then round it down a bit. You can always up the amount in subsequent years. For what it's worth we have maxed out our dependent care FSA every year since we've had access to it. The limit is low for the bay area. Good luck!

    Oct 4, 2017

    If you can find a daycare that will accept your baby one day a week, you'll probably end up spending around $5K over the course of the year. (for comparison, infant daycares in Oakland are about $1700/month full time).  

    As infant daycares are hard to come by and get spots in, you'll probably end up with a nanny.  You can only claim the deduction if your nanny is being paid on the books, which many nannies aren't willing/able to do.  

    You may be better off not setting anything aside next year until your childcare needs are determined. The potential loss from not using the money may outweigh any tax savings.

    Oct 4, 2017

    If you only need one day of care a week, you'll probably be looking at a nannyshare, since many daycares have a minimum number of days. Those average $12 an hour or so these days so you could use that for a ballpark number to decide how much to allocate based on how long you expect the day to be and for how many weeks. If you will need more than a day of care each week, you'll easily go through the full $5K, sadly. 

    Oct 4, 2017

    I don't know if this helps, but for 2/3 of the 2017, we were part of a nanny share just 2 days a week. The last 4 months = daycare, 4 days a week.

    Needless to say, we're blowing through our FSA. I also was nervous and only set aside 4K. Kicking myself about that last 5K. We would have blown through it, even with the nanny share. We had a good deal and were paying about $700/month for 2 days of childcare.

    We now pay $1750/month for daycare, but that's really high--it's a great place. ; )

    Hope that helps.

    Oct 4, 2017

    Can't help with the estimate but you should check your plan to see what the grace period is. You might be able to file claims for more than 12 months. (Some plans have a two month grace period.)

    Oct 4, 2017

    I use all $5K for my kid and have since he was in preschool. But there are some restrictions on what kind of childcare you can deduct. I'd suggest checking out the paperwork because I'm not sure if it covers babysitters. I was given a worksheet that explained the difference between deducting it pre-tax and deducting it from my taxes. My guess is that unless your kid is in daycare, it's probably not terribly useful. Since you lose what you don't use, the others would be easier at least until you have regular expenses that you can count on.

    Also, welcome to parenthood! Congratulations! 

    Oct 7, 2017

  • Using Dependent Care FSA to pay a relative for babysitting

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    Jul 27, 2017

    Doctors have advised us that our daughter should not attend daycare until after she's a year old. Not anticipating this, I had elected for Dependent Care FSA from my company pay. I'd now like to pay my mother to watch our daughter, but am not sure how to do this so I can use these funds. Has anyone paid a family member for care this way? Thanks!

    Jul 27, 2017

    Shouldn't matter if the nanny is family or not. As long as you pay above the table, i.e. withholding taxes and paying social security, you should be able to get reimbursed from your FSA.

    Aug 2, 2017

    You'll need to check with your employer's benefits administrator about how, specifically, to get the money out of the DCFSA account, but it's usually pretty easy - just a form you submit, which will likely require your mother's address and social security number, along with receipts or some other evidence of what you actually paid her.  (You have to pay first, and then you can be reimbursed from the DCFSA.)  Generally, you don't have to deal with "nanny taxes" if your nanny is your parent - unless you are divorced or widowed or your spouse is disabled (which makes no sense, but those are the rules! See IRS Pub. 926) but your parent does have to report the pay as a "household employee" on her income taxes.  This assumes your mom comes to your house and is paid as your employee; if instead she cares for your child at her own home, more like an in-home daycare, she might be considered self-employed; this shouldn't change anything for you but it affects her taxes.

    Aug 2, 2017

    I'm not 100% sure, but I'm fairly certain that it can happen IF your relative is your employee or is an independent contractor operating as his/her own business (ie they need a tax ID number), as the family member must pay taxes against the income they receive from the FSA. It can't be the spouse or the child's parent though (so like your partner couldn't get FSA funds for taking care of his/her own child). I think IRS publication 503 provides the background on this. 

    Aug 7, 2017

    We've done this the past two summers.  We paid my sister for watching our daughter for several weeks.  She provided us with an invoice that included her name, address, social security number, the dates of care and the cost of care.  We paid her and then got reimbursed from our FSA.  No questions asked.

    Aug 10, 2017

    Just to be sure you have alll bases covered, shell have to file the income on her taxes, and you'll need to have worker's compensation insurance that covers her. 

    Aug 16, 2017

Archived Q&A and Reviews

Questions

Change Withholding only during Open Season?

Sept 1999

I've just learned of a very unusual and expensive wrinkle in the Depcare deduction rules, and am wondering if anyone else has come across this and dealt with it successfully. To wit: we've been using the DepCare deduction for several years against the cost of preschool for our son. He 'graduated' from preschool two weeks ago, and has just entered a private kindergarten. A much lower proportion and level of expenses for the new situation are deductible. However, the rules seem to say that we cannot change our with-holding until Open Enrollment this fall, and then not retroactively - only for upcoming year. (This is apparently an IRS, not a University, rule.) The upshot, as near as I can tell, is that a large fraction of the money witheld through the end of the year will simply evaporate - or be forfeited, as the University puts it. (Forfeited by us, that is - the University keeps it.) Has anyone else been caught in this trap, and if so can you offer any advice? Or am I missing something?

My sympathies. We lost money on this too, on the medical expenses side of the same program. Seems like the whole thing needs some kind of re-vamping. Why is so much less of your new school costs deductible? Maybe there is room for adjustment there. Or maybe after-care expenses could be deducted, or transportation costs? Good luck.

What does the enquirer mean by: A much lower proportion and level of expenses for the new situation are deductible. ? Is the cost of the new kindergarden much less than the preschool, and so you're not able to use up the total amount of your annual deduction, e.g., $5000? Or are you implying there are different rules for different types of programs: e.g., child care versus schooling, private versus public? If the former, then it is commonly known that you must project into the future what is the total annual expense for child care, then lose those funds if your actual spending falls short of that amount (maximum of $5K). No changes to your monthly deduction can be made (which seems to be discouraging, not promoting the use of Depcare) after the enrollment period. If it is the latter, perhaps you can better explain what you mean by new situation for all of us to learn better about this provision.

I also heard from another mom that if two spouses are offered Depcare from their respective employers, then the maximum of $5K can be raised to $6 or $7K (don't remember the exact number) -- which as most of us are quite aware, almost all child care programs cost much more than the absurd $5K/year. But my inquiries into this with the UC system said that this was NOT the case. Any one else know about this?

To the best of my knowledge, you're stuck. Same thing with my daughter, who started kindergarten last week. But for me, the cost of pre-school from Jan 1 until Sept was sufficient to use the whole $5000. Are you aware that you can use the whole amount for less than a year-long period? You just can't get reimbursed until the money is withheld from your paycheck, and the withholding is prorated throughout the year. (That is, after my December paycheck, I'll get reimbursed for this past summer!)

It is true that you must carefully evaluate your upcoming expenses for the year when you establish the amount you want to withhold for your dependent care account. However, I find that I spend quite a bit more every month on daycare than 1/12 of the maximum amount I can contribute annually. If this is true for you, and if you can get a receipt from your son's former preschool showing how much you paid between Jan. and Sept., I would think you should be able to recoup at least some of the difference between what you paid and what you've contributed to your dependent care account (less any previous reimbursements, of course). I hope that will be the case for you.

I don't think there is any getting around this regulation, but remember that your summer camp expenditures do qualify, and you can ask for a Depcare refund of those expenses through the entire year. So, if you spent more in June, July and August, you can include copies of those invoices, along with the current month. Good luck.

We had a similar situation with Child care reimbursement when my son stayed home with me after my daughter was born. What we found we could do was apply money already paid and receipts submitted against money coming in.

We were having 433.38 deducted from each paycheck and were paying $600 a month in childcare. This meant that every month we were putting in receipts for 166.62 more than we were claiming. Over nine months that added up to $1499.58 (or $499.86 for each month that he was not in childcare). We wrote a letter to the folks who administered the plan saying we wanted to receive our monthly payment based on receipts they had already received and they did it. We checked fairly thoroughly, and it seems that the childcare reimbursement is not per month, but per total childcare year: This is an IRS thing, not a plan thing.

We were not using the University's DepCare plan at the time so it may be possible that they are less flexible. So, this may be your way to get the money back that you are paying in.

We have been using the Depcare program for many years and as far as I can remember it has always been the case that the amount for the coming year needs to be adjusted during open enrollment. The open enrollment information talks about this, so I have always been careful to estimate changes for the coming year. Something that did happen, however, that I wasn't aware of until I ran up against it, is that apparently the cost of sleep away camps in the summer do not count as a valid expense. So as your child gets older, that needs to be added into the formula.

IRS guidelines define qualified childcare expenses which are eligible for UC's Depcare program. Basically, it's any payments, except for school tuition from Kindergarten on (thru age 12) which you make to Providers that care for your kids and allow parents/guardians to work.

The qualified expenses may include:

- Before & after school childcare;
- Summer programs & camps;
- Spring break camps, etc.

* Go to OP's Depcare program website:

http://www.ucop.edu/bencom/hw/depcarespd.html

* Don't forget to look into IRS Form 2441 & Pub. 503 re: credit for child and dependent care expenses when you prepare your 1999 tax returns.

Depcare and Payment in Advance

We started at a school which required 1 month's tuition to be held in an account and applied to the *final* month of school. Our check was written this year, but will be counted by the school as tuition in yr 2000. How does DepCare view this payment?

From the DepCare website: You submit a claim form and receipts to UC HR/Benefits requesting reimbursement for eligible expenses after the dependent care has been provided. Therefore, you won't get your money back until after the final month of school. I pay my daughter's preschool at the beginning of each month for that month. If I submit my claim form before the end of the month, DepCare just holds it until after the month is over.

The IRS looks at when the cost was incurred, not when it was paid. Therefore, if you pay for 2000 childcare in 1999, you still get reimbursement in 2000. (Found this out the hard way!)