Dependent care Savings Account

[gmeadows09]

I have never used the dependent care savings account through my employer. I can put up to $5000 pre tax into it . This will not cover the complete year of daycare. I pay for daycare for a 2 year old.  I have a 13 yr old and 2 year old I claim every year. Would this be beneficial to do or still claim after the fact?  

[Anonymous]

Hello gmeadows09,

Thank your for participatingin the Ask the Experts event. As to your question, yes, it could be beneficial but you need to understand the specifics of your employers plan. What the dependent care savings account does is allow you to set aside that $5,000 pre-tax to use toward your dependent care throughout the year.

However, if your employer's plan year ends on 12/31 and you don't use all the money you set aside you may lose it unless your employer has a grace period or allows some of it to be carried over. Also, you would need to have had a qualifying life event in order to enroll in it outside the open enrollment period.

Either way, if you spend money on dependent care, having this account is beneficial to give you the tax break throughout the year instead of only when you file your taxes for the Dependent Care Credit. And, it doesn't disqualify you from still receiving the credit for amounts above the $5,000 you set aside throughout the year (you just can't claim the credit on any funds already reimbursed).

I hope that helps.

[gmeadows09]

It’s actually open enrollment for us now. It just doesn’t take effect until Jan 1.   With daycare being over $8000 for the year I don’t foresee having any leftover.  I do not believe there is a grace period.  Would it be better to just go for the max amount or start out below that?

[Anonymous]

If you know you will spend $8,000 for the year, I would do the max $5,000 amount.

[Anonymous]

One more thing to remember....make sure you also claim the dependent care credit for the $3,000 not covered by the dependent care spending account. That way, the $5,000 reduces your taxable income and the $3,000 will give you up to $1,050 as a dollar-for-dollar credit against your taxes. This article may provide some useful information.

[SuziM]

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