Child and dependent care is a critical issue and often a large expense for many families. Millions of Americans rely on childcare to be able to work, while many others are responsible for older parents or disabled family members.
What is Dependent Care Benefits?
Dependent-Care Benefits, often called a Dependent Care Flexible Spending Account (FSA), allows you to have money set aside from your salary, pre-tax, each pay period in order to get reimbursed for eligible expenses related to the care of your dependents. If you are having financial trouble caring for dependents, such as an elderly disabled parent or newborn child, you may be able to receive assistance from your employer. Typically an employer will provide you with assistance in the form of Dependent Care Benefits or Assistance. The benefits vary by employer and are presented as part of your overall benefits and compensation package.
Examples of Dependent Care Benefits include, providing a child care facility on campus, providing time off to care for a newborn, newly adopted children, or dependent elderly persons. Check with your employer for more information about what Dependent Care Benefits are available to you.
Which one should I choose?
The answer to this question depends entirely on your family's adjusted gross income, your tax bracket, and how many dependents you have. Take a look at this worksheet designed to help figure out which benefit will save you the most money, then check with your tax advisor to see what works best for your particular situation.
3 Reasons to Take Advantage of Dependent Care Benefits
#1 — Save money! By using pre-tax dollars to pay for dependent care expenses, you get a discount on these expenses equal to your tax savings. Your discount can easily be hundreds, even thousands of dollars.
#2 — Have money available when you need it. When you take advantage of Dependent Care Benefits or contribute to a Dependent Care FSA, you know you'll have the money to cover these expenses when you need it.
#3 — Because the money you set aside in a dependent care account is pre-tax, you reduce the amount of your income subject to taxes.
Important Tax Information from the Internal Revenue Service (IRS)
If you paid someone to care for your child, spouse, or dependent last year, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. For more information on the Child and Dependent Care Credit, see Publication 503, Child and Dependent Care Expenses. You may download these free publications from http://www.irs.gov or order them by calling 800-TAX-FORM (800-829-3676).