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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.
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