There are many advantages of a dependent care flexible spending account (FSA) for working caregivers. If you have someone who resides in your home whom you are able to claim as a dependent on your tax return, you may be able to utilize the benefits of an FSA to save money. Here are six big advantages of operating an FSA through your employer.
1. Tax Free Income
Contributions to an FSA are withheld from your paycheck before employment taxes are calculated. Distributions from the FSA account are not subject to taxes, either. Therefore, that money is completely tax-free income. Here’s how it work. You decide how much money you want to contribute from each paycheck into your FSA. That amount is subtracted from your gross wages from each pay period. When you are ready to submit receipts for your FSA-approved expenses for reimbursement, your employer gives you that amount without taxes being taken from it.
2. Generous Spending Limits
FSAs are regulated by the Federal Government, and as such have certain guidelines that must be followed. However, the government offers a generous spending limit for FSAs. With an FSA in place, you are entitled to a maximum of $5,000 in approved FSA expenses every year. That’s $5,000 in tax-free income, annually. For a person in the 20% tax bracket, that equates to a savings of $1000 in taxes.
3. Personal Reimbursement Process
Unlike typical insurance claims, getting reimbursed for FSA expenditures is fast and simple. Because FSA transactions are managed by your employer, you deal directly with your HR department when submitting qualifying receipts and requesting reimbursement. In many cases, you can submit qualifying receipts in one day and receive your reimbursement funds in as little as a few days or a week, depending on your employer’s policies.
4. No Waiting and Wondering
When you have an insurance claim, there’s always a chance that it will be denied by the insurance company. With a dependent care flexible spending account in place, there’s no waiting for weeks or months waiting and wondering if your claim will be accepted. As long as your expense falls into the accepted categories set forth by the government, you’ll be reimbursed in full.
5. Broad Scope of Dependent Coverage
Under the FSA guidelines, you can have the account to cover care for a dependent child under the age of 13, as well as a a dependent spouse who is unable to work due to disability, and a dependent adult who is unable to take care of themselves in your absence. These are very broad definitions of a dependent, which make it possible for working adult children to care for elderly parents in their own home instead of having to move them into an assisted living facility. It also enables parents of emotionally or physically challenged children to provide care and supervision while the parents earn a living.
6. Income is Not a Factor
Perhaps the best benefit to FSAs is that income is not a factor for eligibility. No matter how much money you make, or what tax bracket you’re in, you can have an FSA to help with care for a qualified dependent while you work.
If you have a qualifying dependent living in your home, you would be wise to look into opening up a dependent care FSA account. Speak to your employer about your options today.
We are here to help, so please reach out if we can be of assistance to you in any way.