School’s out, summer is here and it’s the time of year working parents have questions about using their Dependent Care Flexible Spending Accounts (DCFSA). A DCFSA is a pre-tax benefit account used to pay for eligible dependent care services, such as preschool, summer day camp, before or after school programs, and child or adult daycare. Our HR experts answer some of the most popular questions about expense reimbursement for children under 13 years old, the most common age group for DCFSA expense reimbursement.
Top DCFSA Summertime Questions
- What are the basic rules for reimbursable expenses?
Dependent care expenses, such as babysitting and daycare center costs, must be work-related to qualify for reimbursement. Work-related means the expenses are for the care of the employee’s child under age 13 to allow the employee to work. If the employee is married and filing jointly, the employee’s spouse also must be gainfully employed or looking for work (unless disabled or a full-time student).
- One of our employees and his family are taking a two-week vacation this summer, but his children’s daycare center will charge its regular fee. Are the expenses reimbursable even if the employee and spouse are off work?
Yes. In most cases, expenses are not eligible unless the dependent care services are necessary for the parents to work, but some exceptions apply. The IRS rules provide for DCFSA expenses during short, temporary absences to be eligible if the employee has to pay the child’s care provider. Absences of up to two weeks are automatically considered short, temporary absences. Depending on the circumstances, longer absences also may qualify.
- During the school year, our employee uses her DCFSA for her 10-year old’s after-school daycare center expenses. This summer, the child’s daycare will be provided by her 20-year old sister. If the older daughter bills for her services are the costs eligible for reimbursement?
The answer depends on whether the employee or spouse can claim the older daughter as a tax dependent. If the older daughter can be claimed as a dependent, she is not a qualifying dependent care provider under the DCFSA rules. This holds true whether the employee chooses to claim her as a dependent or not.
If the older daughter cannot be claimed as a tax dependent, her charges for providing care are eligible expenses. The specific rule states a child of the employee, whom the employee cannot claim as a dependent, may be a qualifying provider if the child is age 19 or older by the end of the year.
Note that the employee’s spouse or the child’s parent is never a qualifying provider.
- One of our employees has to pay an application fee and deposit before her child starts attending a daycare center this summer. Are those expenses eligible for reimbursement?
Prepaid expenses are eligible for DCFSA reimbursement, provided the costs are required in order for the child to receive care. In this case, after the daycare center begins providing care, the employee can be reimbursed for the application fee and deposit that was paid. On the other hand, if the employee cancels and her child does not attend, then the application fee and deposit are not eligible expenses.
- An employee will pay day camp expenses for his 8-year-old son and overnight camp expenses for his 12-year-old daughter this summer. Are both types of expenses eligible for reimbursement?
The day camp expenses generally are reimbursable. Expenses for overnight camp, however, are not eligible since overnight care is not work-related.
Under the IRS rules for DCFSAs, expenses for food, lodging, clothing, education, and entertainment are not reimbursable. If, however, such expenses are small, incidental expenses that cannot be separated from the cost of caring for the child, they may be included for reimbursement. For instance, the day camp may include lunch, snacks, and some sports activities in its basic fee, which would be eligible for reimbursement.
- An employee’s children go to private year-round schools. He pays tuition for one child’s grade school and fees for the other child’s nursery school. Are both types of expenses eligible for reimbursement?
Educational expenses are not reimbursable unless the educational services are merely incidental as part of a child care service. Expenses to attend kindergarten or a higher grade are educational, so the older child’s school fees are not eligible for DCFSA reimbursement. Expenses for before- or after-school care, however, may qualify as reimbursable expenses.
On the other hand, expenses for a child in nursery school, preschool or a similar program for children below the level of kindergarten are expenses for care. Such expenses are not considered educational even though the nursery school may include some educational activities.
For detailed information about expenses eligible for DCFSA reimbursement, the IRS provides a helpful guide: Publication 503 “Child and Dependent Care Expenses”. Have a fun summer!
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