Dependent Care Reimbursement Account - Questions.

Hi there! It's annual benefit selection time again, isn't it! My husband and I just looked at the IRS regulations on this topic, to see if we could use his dependent care account to avoid Federal taxes on the money we pay for our daughter's preschool tuition.

Our understanding is that we are NOT eligible to do this. We looked at it from all angles and could not find a loop-hole. I am a SAHM and have ZERO income. The regulation, as we understand it, requires both partners to attest that each is employed outside the home, with each earning a minimum income (maybe $5k...but I can't remember).

It was clear that the purpose of this regulation/benefit is to help facilitate both partners working. It's relief for families in which the second income is almost fully dedicated to child care expenses. (i.e. "It doesn't really pay to work, as my whole salary goes to daycare.") This tax break is intended to help keep those families working.

We found our information at www.irs.gov
Neither my husband nor I are accountants or tax experts. But if you (or anyone else) knows of a way to make this work, please send me a message!

I work in HR and handle our FSA accounts. Here are the answers.

1. Yes you can use the account for a qualified preschool or day camp.

2. No you cannot be reimbursed in December for January services even though you pay in December. You can only be reimbursed after the dates of service not when you pay for them. I am not sure when your FSA year runs, but if it is January to December, you will not be able to be reimbursed for the January payment in your 2009 account, only from the 2010 account.

Hope that makes sense. If you have any other questions let me know.

1. yes
2. we did, as long as they report it as received in 2009, worked for us... wanted as much of our money back as we could get!

who is the carrier (third party) that handles FSAs for your company? they are the ones to call since they are the ones that will pay out the claims. whatever people tell you hear, still contact the carrier since they have the final say. just call your company and ask for the number for the FSA company.

It is my understanding that it is for working parents, but yes, preschool/summer camps count.

If you have a tax preparer, it is also worth checking with them on whether it's worth the trouble. In our situation (and we already itemize and have other deductions) it comes out to about the same whether we use the dependent care account or take the credit at the end of the year, so we don't bother with the account. (it's pathetic what a small amount of money you get back, too - I remember one year looking at the return. We had paid out $22,000 in child care and got to save a whopping $600 or something crazy like that.)