The Dependent Care Spending Account allows you to deposit up to $5,000 into a tax-free account to be used for eligible dependent care expenses – depending on your tax filing status.
- If you file your Federal taxes as married filing separately, you may each deposit up to a maximum of $2,500 annually, or $208.33 spread over 12 months.
- All other tax filing statuses may deposit up to a maximum of $5,000.00 annually, or $416.66 monthly when spread over 12 months. The maximum of $5,000.00 per couple applies even if both people have access to a spending account through different employers.
Advantages of participation
Total tax avoidance for FICA, Federal, and State taxes.
The ability to deduct dependent care expenses from your taxes decreases as income increases. By participating in the flexible spending account, you have the advantage of avoiding the taxes regardless of income.
While dependent care expenses are tax deductible up to certain levels, participation in the spending account also lets you avoid the 7.65% FICA tax.
If you are contributing the maximum monthly amount to the spending account, the annual savings to you by avoiding the FICA tax will be approximately $382.
- Dependent care expenses claimed must be for care required so that an eligible employee and spouse (if married) can work, look for work (income must be earned during the year), or attend school full time.
- To be eligible for reimbursement, expenses must be incurred by December 31st of the year in which funds are contributed to the spending account.
- You have until the final working day in April of the following year to file reimbursement requests with the Benefits Office for services received in the year of the spending account.
- Any funds pledged to a spending account, for which eligible expenses are not incurred by December 31, will be forfeited. This is not a program where a balance can be carried over.
- If you terminate employment during the year, you can continue to submit expenses for the remainder of the calendar year.
- Exceeding the $5,000 limit as a couple can have tax consequences.
- Deposits to the dependent care spending account may reduce your Social Security wage base, and consequently, your Social Security tax contributions may be slightly reduced.