- The American Rescue Plan Act (ARPA) raises the annual limits for pretax contributions to dependent care FSAs in 2021 only. This means dependent care FSA participants may be able to contribute more to their accounts on a tax-advantaged basis to pay for eligible expenses. Employees who had a dependent care FSA through the Board of Pensions may be able to change the amount they have elected to set aside in 2021, going forward, even if they do not have a qualifying life event.
The Consolidated Appropriations Act, 2021, allows flexibility for employees who had a dependent care FSA through the Board of Pensions in 2020 and who had a balance at the end of 2020. If your child turned 13 in 2020, you can continue to use dependent care FSA funds for that child through 2021, provided those funds are used by December 31, 2021. This is a temporary change and
does not apply to children who turn 13 in 2021. The maximum age eligible for funds from a dependent care FSA continues to be 12 (up to 13); the exception applies for contributions in 2020 only.
Eligible expenses must be for the care of children under age 13 (except as noted above) or for older family members unable to care for themselves and who can be claimed as dependents on your federal income tax return. Examples of eligible expenses include
- work-related babysitting services (in your home or someone else’s home), including babysitting by a relative who is not your tax dependent;
- payments to licensed day care facilities;
- before- or after-school programs;
- summer day camps; and
- adult day care.
Care must be provided by an individual with a tax ID or Social Security number. Refer to IRS publication 503 for a more complete summary of eligible dependent care expenses.
You can’t use a dependent care FSA for these expenses:
- care for children age 13 (except as noted above) or older unless they are unable to care for themselves
- care provided by a parent or sibling under age 19 or by someone you claim as a dependent for tax purposes
- school expenses including kindergarten
- late fees or fees charged for missed days
- overnight camp
- after-school sports or enrichment classes
- transportation, activity fees, meals, and food items
- an eligible family member’s medical, dental, or vision expenses (you may use a healthcare FSA for these types of expenses)
How it works
- You estimate eligible dependent care expenses for the upcoming year.
- Next, you
decide the annual amount to defer from salary — how much to have set aside from each paycheck — to go into the FSA to pay for eligible expenses for the coming year (this amount is called the election; IRS limits apply). Your employer will give you an enrollment form to make your annual election and return for processing.
- Your employer will automatically deduct the amount you elect for the FSA from your pay on a pretax basis. This amount will be credited to your FSA over the course of the year.
- When you have an eligible expense, you can submit a claim to be reimbursed from the FSA through the Further secure member portal. It is a good idea to save all receipts for reimbursements and to validate expenses.
- Funds are available to use as they are deposited in the account. You may be reimbursed for eligible expenses up to the amount in your account at the time payment is requested.
Important: The IRS has historically had a use-or-lose rule for FSAs. The Consolidated Appropriations Act, 2021, has temporarily increased the flexibility of FSAs elected in 2020 and 2021.
Learn more about how this legislation may affect you.
Using your dependent care FSA
If you're enrolled in an FSA, you can manage your account through the
Further secure member portal. To register and create a profile, you need your spending account identification number (SAID), which is included in your welcome packet from Further. If you don’t have your SAID, call Further’s Member Service line at 800-859-2144.
Once registered, you can log in to the site to manage your account:
- See your real-time account balance.
- Review account activity (contributions and payments).
Request reimbursement, pay a provider directly, and check the status of a payment.
- Sign up for
direct deposit of reimbursements into your personal bank account.
Dependent care tax credit
- The IRS and some states allow a tax credit for the same types of expenses that qualify for the dependent care FSA. You cannot claim a tax credit for expenses that are reimbursed from a dependent care FSA and vice versa.
- The tax advantages of using a dependent care FSA versus claiming the tax credit vary with individual circumstances. You should consult your financial adviser or tax professional to determine which method is better for your situation.