M.C. asks from Spring, TX on September 29, 2009
FSA Account for Daycare Expenses
I'm interested in beginning a FSA account to cover childcare expenses but am not entirely sure how it works. If anyone out there uses one and can provide an overview and if it's greatly beneficial - any input is appreciated.
2 moms found this helpful
So What Happened?™
Wow - thanks so much for all of the very helpful comments!! Guess I should consult w/ a tax advisor to see which would benefit us the most.
Y.L. answers from San Angelo on September 30, 2009
I love my flexible spending account! With today's economy, our budget is pretty maxed out, so getting reimbursed along the way helps me make ends meet. Plus, it does drop you down into a lower tax bracket, which at the end of the year is a plus. For those who don't need to rely on the reimbursement to make ends meet, you can wait to claim your reimbursement at the end of the year, for example, at Christmas time, or a co-worker of mine claimed it at the end of the year and put it into a college saving account (after 4 years, it amounted to 20K !)
J.H. answers from Houston on September 30, 2009
We have one and love it! We feel like we get our money back when we make a huge purchase (ie eye exaime and glasses) although it was our money to begin with. We set aside how much fsa money we will need for the year and that money comes out pre taxed and we use it for ALL things we do medical! We also used to use it when we had daycare expense. Great thing to have in our opinion. Helps you save the money you need for all those doc visits, eye examines and medicines. Great program!!
A.C. answers from Austin on September 30, 2009
It's a great way to cover the expense HOWEVER the reason I did not do it is that come tax time you WILL NOT be allowed to use your daycare as an expense write off. Now I am a single mother of one and I rely on being able to claim that 6k to get a larger return. Something to think about....
M.M. answers from Austin on September 30, 2009
Definitely seek the advice of a professional. One thing I did want to point out is that while yes you can claim your dependent expenses at tax time, you may only claim up to $3000. If you participate in an FSA, you can contribute up to $5000 - so you get a little more.
I participate in my company's FSA plan, and have yet to have any problems with reimbursements or waiting for the service month to end before receiving my reimbursement. I think it may depend on the rules of each particular provider. We use Flores, and they provide reimbursements for what has been paid regardless of the service time - so long as it is within the plan year.
A.C. answers from Houston on September 29, 2009
I love FSA. Deferring $5000 of my annual income DOES make a difference. My current annual childcare expenses run nearly $8000. I suspect with two in childcare, you could benefit.
You can submit your expense once the service has occurred (this is different from medical FSA), but you are only reimbursed based on what you've contributed up until that point. Example, I max out my plan so around $200 is deducted from every check. My monthly expenses are $635. I submit a claim for the TOTAL amount at the end of the month and the reimbursement pulls from that total amount...not just the $400 a month that I contributed, so I don't even have to put in a claim form every month. I get three paychecks or so out of every claim. You are sort of "behind" as the month of service has to complete before you can claim reimbursement, but it can easily be overcome with a little planning.
I get reimbursed very quickly as we have direct deposit...I get the funds either the same day as my paycheck or the following Monday.
To be honest, it is also a bit of a budgeting tool. What you do don't see, you can't spend.
Keep in mind that if you use private care, your care-provider will have to supply either their EIN or SSN for verification. So, if they are not claiming their childcare income, you may have some difficulty (or create some difficulty).
A.S. answers from Houston on September 30, 2009
My company's FSA for childcare is very simple to use. I pick a set amount of money to come out of my paycheck every pay period and it goes into an account and waits for me to use it. I pay for the daycare costs and send the agency that our FSA is through the receipt and then they send me a check for that amount. Some FSAs are set up to be used like checks where you'll get a check book sent to you from the agency and you write checks to the daycare directly from your account. Either way it lowers the amount of taxes that are taken out of you check so you save a little money that way.
Please be warned though, if you don't use all the money in your FSA by the end of the fiscal year then you loose everything that's left in it.
J.H. answers from Austin on September 30, 2009
I use an FSA account and love it.
What I do is pay my daughter's pre-school tuition each month and then fax a copy of the standard form from our FSA, plus the pre-school receipt, to the FSA provider.
When I get paid, the FSA folks deposit $400-something (can't remember the exact number at the moment) into my bank account. Essentially, you are reimbursing yourself with the FSA provider as middleman. But you're reimbursing yourself with pre-tax dollars, so you're reducing your taxable income by, I believe, $5,000/year if you contribute the maximum. FSA's only reimburse up to $5,000/year, but, hey, every little bit helps, right?
I think the FSA provider is pretty key. My employer uses an outfit called Flores, based in Charlotte, N.C., and I have found them to be excellent. Very fast and responsive. So, you might check with employer, if you haven't already, about which company they use and ask other employees who have accounts if they're getting reimbursed quickly and generally like or don't like the way it's working.
Hope this helps.
V.A. answers from Beaumont on September 30, 2009
Hi M., FSA account is a great program. I used it the entire time my children were in daycare and daycamp. They are 8 and 9 years old now :( How the program works is, you will pledge an amount for the entire year. For example, $3000 and they will deduct $125.00 from your paycheck every pay period. Once you have deposited money in the FSA account you can turn in receipts from your daycare to get reimbursed for the amount you have paid. Basically, you are reimbursing yourself from the $3000 that will accumulate in the FSA account. I know with my company, the money has to be in the account in order to get reimbursed. For example, if you turn in a receipt for $150 and you have only accumulated $100 in that account, they will only cut you a check for the $100 until more money is deposited into the FSA account. You can turn in receipts as often as you would like. Remember, you have to use the $3000 up by the end of the year or you will lose it. Hope I did not confuse you!! Hope this helps!!