DEPENDENT CARE

How A Dependent Care Spending Account Works

A Dependent Care Spending Account is a tax-free account that you can establish with your employer. It works very much like a savings account except, instead of earning interest, you save taxes on the contributions you make.

How A Dependent Care Spending Account Saves You Money

As an example, let's assume that you expect to pay $3,000 for work-related dependent care expenses during the year. Let's also assume that you are in a 28% tax bracket and pay 7.65% in Social Security (FICA) taxes. If you elected to contribute $3,000 to your Dependent Care Spending Account, your tax savings would be 35.65% of $3,000 or $1,069.50! If you are in a higher tax bracket or reside in a state that imposes a state income tax, your savings would be even greater! (* Actual tax savings will vary by individual.)

Your Dependent Care Expenses Must Be Work-Related

To qualify for a Dependent Care Spending Account, your dependent care expenses must be work-related, meaning that the dependent care is required so that you - and your spouse, if you are married - can be gainfully employed outside the home. A special rule applies if your spouse is a full-time student or is incapable of caring for themselves.

Who Is An Eligible Dependent

An eligible dependent is defined as a person who you can claim as a dependent for federal income tax purposes and who:

• Is under age 13; or
• Requires full-time care because of physical or mental incapacity (such as a disabled parent); or
• Is your spouse and is physically or mentally incapable of caring for himself or herself.

Who Are Eligible Dependent Care Providers

Eligible dependent care providers include:

• An individual who cares for your dependent either in your home or in their home (provided that individual is not your spouse, is not another child of yours under age 19, or is not your parent if you claim that parent as a dependent of yours);
• A day care center or nursery (provided that center or nursery meets state and local regulations, cares for more than six nonresidents and receives a fee for such services, whether or not for profit);
• Before or after school care (provided your child is not over age 12);
• Summer day camp (but not overnight camp);
• A nursery school.

What Kind of Expenses Are Not Eligible

Examples of ineligible expenses include:

• Evening babysitting (unless you work in the evenings and are a single parent or, if you are married, you and your spouse both work in the evening);
• Entertainment, food or clothing unless such items are incidental and cannot be separated from the cost of the dependent care;
• The cost for transportation to get your child or other qualifying dependent from home to a care provider, or from school to a care provider. This includes public transportation fares such as travel by bus, subway or taxi;
• Transportation costs associated with bringing a care provider to your home; or
• Educational expenses for a child in kindergarten, first grade or above.

What Is The Maximum Contribution

The IRS limits the amount you may contribute to your Dependent Care Spending Account. The maximum you may contribute is $5,000 per plan year (or $2,500 for married individuals filing separate federal tax returns). If you and your spouse work for the same employer or if your spouse contributes to a Dependent Care Spending Account at his or her place of employment, the maximum combined contribution cannot exceed $5,000 per household. In any case, your contributions to your Dependent Care Spending Account cannot exceed your earned income or your spouse's earned income, whichever is less. A special rule applies if your spouse is a full-time student or is incapable of self-care.

How To Establish A Dependent Care Spending Account

First, you must decide how much you want to contribute to your Dependent Care Spending Account. The amount you should consider contributing should be no greater that the amount you expect to spend for eligible dependent care expenses during the plan year. Your contributions will be deducted each pay period and credited to your Dependent Care Spending Account. All deductions will be made before federal income tax, state income tax, and Social Security taxes are calculated.

What is the turnaround time for a claim for reimbursement to be processed

Claims are processed within 24 hours of receipt. Reimbursement will be made according to the reimbursement schedule established by your employer. If you have not received a copy of your employer's Reimbursement Schedule, you may request that a copy be sent to you by contacting flex@ebsatlanta.com or by calling a member of the Customer Service Team, toll-free, at 1-800-647-3709.

How To Receive Reimbursement From Your Dependent Care Spending Account

When you incur an eligible dependent care expense, you will need to submit a Claim Form along with a bill or receipt, to obtain reimbursement. You can be reimbursed an amount equal to your contributions to date less any previous reimbursements. This means that if you submit a claim for expenses that exceed your contributions, you will be reimbursed for the amount you actually have available in your Dependent Care Spending Account on the date the claim is processed. You will automatically be reimbursed the balance of your claim as additional contributions are made.

When Eligible Expenses Must Be Incurred

Eligible dependent care expenses must be incurred during the plan year. "Incur" means that the services must actually be provided during the plan year, regardless of when you are billed for the services or pay for the services. Please note that it is not necessary that you have actually paid the amount due for an eligible dependent care expense - only that you have incurred the expense and that it is not being paid by or being reimbursed from any other source.

Dependent Care Provider Identification Requirements

To be eligible to claim the Federal Dependent Care Tax Credit or for an expense to be eligible for reimbursement through a Dependent Care Spending Account, you must provide the caregiver's name, address and taxpayer identification number (or Social Security Number) on IRS Form 2441. You must complete a Form 2441 once each plan year and submit it to EBS/Atlanta for each dependent care provider you use.

Must I pay my dependent care provider first before I can file a claim for reimbursement?

No, you must only incur the expense during the plan year. "Incur" means that the service must actually be provided during the plan year, regardless of when you are billed or pay for the service.

If I have dependent care provided during one plan year, but I do am not billed or pay for the care until the next plan year, can I still be reimbursed?

Possibly, if you had a Dependent Care Spending Account during the plan year in which the service was provided. For example, if your employer's flexible benefits plan operates on a calendar year basis (January 1 to December 31) and you incurred the expense on December 22, 2003, but you were not billed or did not pay the expense until January 15, 2003, you could file the expense against your 2003 Medical FSA but not against your 2004 Medical FSA. Only expenses for dependent care services actually provided during the plan year may be claimed for reimbursement. Each plan year is treated separately and expenses may not be carried forward from plan year to the next.

How can I obtain additional Claim Forms?

Claim Forms are available on our Web site under the "Forms" tab. These Claim Forms are interactive, which means you may download and save the Claim Form on your personal computer and complete it each time you need to file a claim simply by tabbing through the fields. The Claim Form will even total your expenses for you. (You must have Adobe Reader available for free on our Web site to access these forms.) You may also obtain Claim Forms by calling a member of our Customer Service Team, toll-free, at 1-800-647-3709.

Can I submit my claims electronically or by e-mail?

No. Federal regulations require that you sign your claim form and attach any supporting documentation. Therefore, you must either mail or fax your Claim Form.

Making Mid-Year Changes to a Dependent Care Spending Account

Generally, once you've decided to establish a Dependent Care Spending Account, you will not be able to change your contributions during the plan year unless you have a qualified change in status, such as the birth of another child, divorce or death. You may also be able to change your contribution if your day care arrangement changes (you switch providers or remove your child from daycare, the cost of day care changes during the year or your child reaches the age of 13 during the plan year. To request a mid-year change, you will need to complete a Revocation Request Form and submit it to EBS/Atlanta within 30-days of the status change or change in provider. If your change in status allows you to decrease or stop your dependent care contributions, payroll deductions for the remainder of the year will be at the lower rate. However, any contributions you've already made to your Dependent Care Spending Account must be used for reimbursements. They cannot be refunded to you as a result of your change in status.

What Happens To Your Account When You Take A Paid or Unpaid Leave of Absence

Because dependent care expenses must be work-related, you may not be reimbursed for dependent care expenses incurred during any period of paid or unpaid leave of absence taken by you or your spouse. It is also recommended that you complete a Revocation Request Form to stop deductions during the leave of absence. You may have your deduction reinstated when you or your spouse returns to work.

What Happens To Your Account When Employment Terminates

If your employment terminates during the plan year, no additional contributions may be made to your Dependent Care Spending Account. You may, however, continue to claim reimbursement for eligible dependent care expenses that you incurred prior to your date of termination.