Anyone Currently Using a Dependant Care Account?

Updated on March 27, 2008
M.W. asks from Crofton, MD
6 answers

We are thinking about using one of those accounts for when my daughter starts school/daycare. Can anyone tell me how it works and how its working for you? Also do you have to be either a full time working parent OR a full time student along with a full time working spouse?

And is this separate from claiming childcare on your taxes?...we have never done this before....

Thanks!
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S.A.

answers from Washington DC on

I am a federal employee so I am not sure if it works the same through other non-federal programs. But you can put away upto $5,000 of pretax dollars to cover child care expenses. Each month after I pay for daycare I submit a form to be reimbursed. You can not do both this and a tax deduction for child care expenses. You will have to talk to a tax preparer to figure out whether the deduction or the dependent care account will be more benefital for you (it will depend on your income, etc.) For us it was more benefitial to have the dependent care account.

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T.S.

answers from Washington DC on

I used to use a flex account when my daughter was in daycare. The one thing I didn't see mentioned is that you need to estimate carefully how much your anticipated child care expenses will be. The account is "use or lose", meaning if you have more money withheld than you spend, you will not get the remainder back. Your employer keeps it. It's to prevent people from declaring the maximum amount just to avoid paying taxes on that money.

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B.B.

answers from Washington DC on

I used it a few years ago. I felt like I was paying for my day care expenses, and not being able to get reimbursed from the dependent care due to the way the system works.
There is a certain dollar amount you can allow for Dependent care. I don't recall the figure as it does sometimes change from year to year.
For Example, lets use $4,000.00 per year is the maximum and that is what you choose to have in your dependent care account. This will be split up evening between your paychecks (based on biweekly cks) which would be about $192.00 deducted from your pay bi-weekly pay and put into the account.
Let's say your daycare is $200.00 per week. You can't request the $200.00 you paid out for daycare last week until the funds in your dependent care account $200.00 in payroll deductions.
Therefore, in a month, you have paid your daycare $800.00 out of your pocket and also through payroll deduction, have paid your Dependent Care Account only $384.00.
Do the math, you have paid an extra $476.00 in the first month meaning, you were only reimursed the $384.00 that you put the dependent account.
For that month and many months after until year end, you will be shorted each month in your pocket. Yes eventually at the end of the year it does catch up. Unless you have that kind of extra money to play with month after month, you could run into hard times financially.
At the end of the year, it all works out because you have received by your entire $4,000.00 you put in. Yes, it does help with taxes.
I didn't have the extra money to play with each month, therefore, it did not work out for me. It made me fall behind on other bills because I had to pay the daycare center and the money was being deducted from my payroll checks, but I could only get reimbursed what I had put in through the payroll deductions.
The Dependent Care Accounts do not work like the Medical Care account if you are familiar with those.
Get more options before making your decision.
Basically it all depends on how much extra money per month you have to play with and don't mind not having it to play with.
B. - Jessup, Maryland

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C.D.

answers from Washington DC on

I had one last year and used it for my son's preschool and summer camp as well. How it works is that for eligible dependent care expenses (ie daycare, camp, preschool) the funds are taken out of your paycheck pretax so that your taxable income is less. Go the the IRS website and it will tell you exactly what expense is tax deductible and what is not. I don't remember how much I saved but every bit helps. I also have a flexible spending health care account too which helps a lot. Good luck.

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M.M.

answers from Washington DC on

Hi! I use the flex spending account for childcare and it works for me and I love it. I am taxed less on my paycheck and I let that money sit in the account and use it as "savings" for when I really need it. I only saw a 46.00 difference from my check because I was taxed less. Hope it helps. The only negative part is that you have to pay daycare twice the first month. I would change my deductions for a check or two to make up the diffrence then change it back after one or two checks.

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A.S.

answers from Washington DC on

Hi,
If you are talking about a flex account, this is when you determine how much child care will be. That amount will be taking out of your check into a flex account (it is not taxed). The down side is that when you have aflex account you cannot change the amount once started each year. For example if you tell them child care costs 1000 later in the year you cannot change it to 1500. Your employer should have info about flex accounts, Hope this helps
A. S
Married and teach in PG county

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