Daniel Stewart

Understanding Dependent Care FSA

Caring for dependents can be a costly endeavor. Whether that's a small child or an incapacitated elderly family member, the costs are substantial. While some try to manage dependent care themselves, it often interferes with work and the ability to earn a reliable income.

Fortunately, some employer-sponsored benefits could make covering dependent care more manageable.

A dependent care flexible spending account (FSA) is a sought-after perk many companies offer employees. When you enroll in a dependent care FSA, you contribute pre-tax income from payroll to cover the costs associated with dependent care. Sometimes, FSAs come with a special debit card that allows you to use the account for care costs. However, in most cases, you pay for them out of pocket and apply for reimbursement from the FSA.

Dependent Care FSA Limits and Qualifications

Because these accounts are employer-sponsored, companies can limit how much you can contribute from your paycheck. Even still, there are federal limits you can't exceed, regardless of the terms your employer sets.

In 2023, you can contribute up to $5,000 if you're married and filing jointly or a single parent. For married individuals who file taxes separately, the limit is $2,500.

FSAs don't last forever. Generally, the funds in these accounts last for an entire year. That means you have a year to use the funds. Unlike self-owned health savings accounts, the funds do not roll over yearly. Therefore, it's a "use it or lose it" situation.

What is an FSA Grace Period?

Dependent care FSAs are tied to your employer. That's important to remember because you can't take the FSA with you if you change jobs. Furthermore, you can't roll the money into the next year to grow your savings.

What is an FSA grace period? Fortunately, there is a bit of wiggle room. Grace periods give you additional time to use FSA funds beyond the end of the year. Whether or not you have a grace period depends on your employer. Like contribution limits, employers can set grace periods. However, it may not exceed 2.5 months.

Author Resource:-

Daniel Stewart has been helping people with their money management and personal finance with over 15 years' experience in business finance. You can find his thoughts at health investment blog.