Dependent care FSA eligibility for jobs like Instacart shopper

[TJ109]

Hi,

I'm employed and my company has dependent care FSA plan. My wife is working as an Instacart shopper and she gets 1099-NEC. I know that in order to be eligible for dependent care FSA, both should be employed. So my question is. Are Instacart shoppers as contractors are treated as employed and eligible for dependent care FSA? Thank you.

[Opus 17]

No. She in an independent contractor, and there is no way for her to participate in an FSA.

If she is covered by a qualifying HDHP insurance plan (even if the plan is in your name), and has no other medical coverage, she can contribute to an HSA, subject to certain other limitations. 

[rjs]

Since your wife is self-employed, she cannot have a dependent care FSA. But you can use your employer's dependent care FSA if your wife works as a contractor. Her self-employment income is earned income (income from working) for qualifying for dependent care benefits.

[Opus 17 · Accepted solution]

@rjs 

Yes, self-employment income is considered earned income, or income earned from working, and satisfies the requirement for the dependent care FSA.

@TJ109 

The maximum FSA that you can use is $5000, or the actual cost of dependent care, or 92% of your wife’s net earnings from self-employment, which ever is least.

Your wife has to take all legitimate business expense deductions, such as mileage on her car. Then, due to a quirk in how self-employment tax is calculated, the amount that is considered “earned income” for purposes of the dependent care credit is 92% of her net self-employment income after expenses.

If, at the end of the year, your FSA reimbursements are more than your wife’s net self-employment earnings, the uncovered portion of the FSA is added back to your taxable income, but there is no additional penalty.

[TJ109]

That's clear. Thank you @Opus 17 and @rjs