Navigating childcare expenses can seem overwhelming, but using a Dependent Care Flexible Spending Account (FSA) effectively can make a significant difference. In this guide, we’ll explain how you can make the most of your FSA benefits in Massachusetts.
Understanding Dependent Care FSAs
A Dependent Care FSA is a pre-tax benefit account specifically used to pay for eligible childcare services such as preschool, summer day camp, before or after school programs, and both child and adult daycare. This employer-sponsored benefit can help reduce your taxable income, thereby lowering your taxes.
Not all employers offer a dependent care FSA, but yours may. You should confirm with your HR department.
Eligibility and Contributions
To utilize a Dependent Care FSA, the IRS requires that you have a dependent who is under 13 years old or a spouse who requires care. For residents of Massachusetts, the annual contribution limit is $5,000 for individuals or married couples filing jointly, and $2,500 for a married person filing separately. These contributions are typically made by you, in your paycheck, and are before taxes (which can provide a significant tax savings for many families).
Eligible Expenses in Massachusetts
Eligible expenses for FSAs in our state include costs for various childcare services, including daycare, after-school programs, and even summer camps. These expenses must be incurred to enable you (and if applicable, your spouse) to work, seek employment, or attend school full-time.
Making Claims and Getting Reimbursed
Some FSA programs provide you a debit card that you may utilize at our schools to pay for tuition. Other programs require you to submit receipts or statements in order to be reimbursed. Our Future Learning Center (OFLC) provides a statement automatically every two weeks (as a PDF) to all our families, and once a year we provide a full statement (also as a PDF, with your schools FEIN/EIN) for the calendar year to assist you with seeking reimbursement from your FSA administrator.
Maximizing Your FSA Benefits
Careful planning is key to using your FSA effectively. Adjust your contributions based on expected childcare costs or changes in your job situation. Since FSA funds are use-it-or-lose-it, it’s important to plan thoughtfully to avoid losing money.
Common Pitfalls to Avoid
A frequent oversight is not submitting claims for eligible expenses by the end of the plan year. The plan year, and any grace period (often three months after the end of a plan year) should be paid close attention to. Many dependent care FSA programs have a “use it or lose it” provision.
Another common mistake is failing to adjust contributions when your childcare needs decrease, such as when a child begins attending public school. Regular reviews of your contributions and expenses can help you stay on track.
Additional Resources
For further details, you might consider visiting the IRS website or consulting with a tax advisor to ensure you’re making the most of your FSA benefits according to the latest regulations.
Boston University provides a useful Dependent Care FSA Calculator here: https://www.bu.edu/hr/health-wellness/flexible-spending-accounts/dependent-care-flexible-spending-account/dependent-care-fsa-calculator/
