Eleanor Finch
A Dependent Care Flexible Spending Account (FSA) is a pre-tax benefit account that allows employees to pay for specific child care and adult-dependent care expenses that enable them to work. To qualify for reimbursement, both spouses must work and earn an income unless one spouse is between jobs and actively looking for work. Actively looking for work involves researching and applying for jobs, attending interviews, or related activities. This article will explore what constitutes actively looking for work in the context of FSA childcare.
| Characteristics | Values |
|---|---|
| Who can use it? | If divorced, only the parent with custody of the child can use the funds for childcare. If married, both spouses must work and earn an income to qualify for reimbursement unless one spouse is between jobs and actively looking for work or is disabled and unable to work. |
| Annual contribution limit | $5,000 for those who are single or married and filing jointly; $2,500 for those who are married and filing separately. |
| Qualifying expenses | Daycare, nanny, babysitting, before- and after-school care, summer day camp, preschool, child or adult daycare, etc. |
| Qualifying individuals | Children under 13, or adult dependents who are mentally or physically incapable of self-care and live with you for at least eight hours each day. |
| Reimbursement | Submit a claim for reimbursement of eligible expenses. Receipts and documentation are required. |
| Forfeiture | Any unused funds in the account after the benefit period ends will be forfeited. |
| Grace period | Employers may offer a grace period of up to 2.5 months to allow individuals to spend the balance. |
| Rollover | Employers may offer the option to roll over up to $610 at the end of the year. |
| "Actively looking for work" | Researching and applying for jobs, attending interviews, or related activities. |
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What You'll Learn
- Both spouses must work and earn an income to qualify for reimbursement
- Unemployment compensation is not considered earned income
- Actively looking for work includes researching and applying for jobs
- Full-time students are considered to have worked
- The custodial parent can use FSA funds for childcare if divorced
Both spouses must work and earn an income to qualify for reimbursement
For married couples, both spouses must work and earn an income to qualify for reimbursement through a Dependent Care Flexible Spending Account (FSA). This account allows individuals to pay for qualified child and dependent care expenses while lowering their taxable income.
Dependent care FSAs are set up through an individual's workplace. Participants authorise their employers to withhold a specified amount from their paychecks each pay period and deposit the money into their account. The maximum contribution per year is $2,500 if married and filing separately, and $5,000 if married and filing jointly.
The money in the account can then be used to pay for eligible out-of-pocket expenses. Examples of eligible expenses include childcare, babysitting, before/after-school programs, summer day camp, and transportation fees. It's important to note that fees associated with kindergarten and tuition for first grade and above are not eligible for reimbursement.
To receive reimbursement, individuals must submit a claim along with receipts or proof of payment. The receipts must include specific information such as the patient's or child's name, the provider's name, and the date of service. It's also crucial to save these receipts and documentation for any dependent care FSA transactions, as money not used to reimburse eligible expenses within the plan year may be forfeited.
In certain cases, if one spouse is not working, they may still qualify for reimbursement if they are actively looking for work, a full-time student, or disabled and unable to work. Actively looking for work typically involves researching and applying for jobs, attending interviews, or related activities. However, it's important to note that unemployment compensation is not considered earned income, and the reimbursement amount is limited to the income earned by the lower-earning spouse.
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Unemployment compensation is not considered earned income
Unemployment benefits are not considered earned income. However, receiving unemployment benefits does not automatically make you ineligible for the Earned Income Credit (EIC). You may be eligible to claim the EIC if you earned income from a job or self-employment for at least part of the tax year. The unemployment compensation you receive counts toward your adjusted gross income (AGI). To be eligible for the EIC, your AGI must be below the applicable maximum for the tax year. The applicable maximum AGI varies depending on your filing status and the number of qualifying children.
Dependent care Flexible Spending Accounts (FSA) are only available to workers whose employers offer them. Employees can withhold agreed amounts from their paychecks to fund their FSAs. If you are married, both you and your spouse must work and earn income to qualify for reimbursement unless one spouse is between jobs and actively looking for work or is disabled and unable to work. Actively looking for work means researching and applying for jobs, attending interviews, or related activities. If you are divorced, only the custodial parent may use a dependent care FSA. The maximum amount of money that can be put into a dependent care FSA is $5,000, or $2,500 if married and filing separately. FSA contributions cannot be returned in cash. If you don't use the funds within a specified time frame, then you lose those contributions.
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Actively looking for work includes researching and applying for jobs
To be eligible for a Dependent Care Flexible Spending Account (FSA), both spouses must work and earn an income. However, an exception is made if one spouse is actively looking for work. In this case, the working spouse can still qualify for reimbursement from their FSA for childcare or dependent care expenses.
So, what constitutes "actively looking for work"? This generally means spending time researching and applying for jobs. This can include activities such as:
- Browsing job boards and company websites for suitable vacancies.
- Sending out resumes and completing job applications, tailoring each application to the specific role and organisation.
- Networking with potential employers and industry professionals, either online or at events.
- Regularly checking and responding to job alerts and notifications.
- Actively seeking out and applying for jobs that match your skills, qualifications, and experience.
It's important to demonstrate a proactive approach to job hunting, showing that you are dedicated and committed to finding employment. This might involve setting aside a certain number of hours each week specifically for job-hunting activities and keeping a record of your efforts. This could include maintaining a spreadsheet or diary of applications, as well as keeping records of any correspondence or interview invitations.
Additionally, "actively looking for work" can also include attending interviews, following up on applications, and participating in activities directly related to the job search, such as career counselling or upskilling courses.
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Full-time students are considered to have worked
For a dependent care expense to be eligible for reimbursement from a dependent care FSA, the care must be in place so that you and your spouse can work, actively look for work, or attend school full-time. Actively looking for work means researching and applying for jobs, attending interviews, or related activities.
It is important to note that if both spouses are full-time students, they may not each claim the maximum amount of $5,000. The maximum amount available for married couples filing jointly is $5,000, while it is $2,500 if filing separately.
Additionally, if one spouse is not working and is actively looking for work, the other spouse who is a full-time student can still use their FSA funds for childcare expenses. However, the "looking for work" part is often misunderstood to mean that seeking employment alone qualifies for the credit. The actual dollar amount of the credit is limited to the income earned from working for the lower-earning spouse.
In summary, full-time students are considered to have worked for at least five calendar months during the tax year, and this status allows them to access FSA funds for childcare while they pursue their studies.
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The custodial parent can use FSA funds for childcare if divorced
A Dependent Care Flexible Spending Account (FSA) is a pre-tax benefit account that allows employees to pay for specific child care and adult-dependent care expenses. This enables employees to maintain their employment status and reduces their taxable income.
If you are divorced, only the parent with custody of the child can use the FSA funds for childcare. The non-custodial parent is still considered a qualifying individual with respect to the child if the child lives with them, even if the custodial parent claims the exemption.
The custodial parent can use the FSA to pay for a wide range of childcare expenses, including daycare, babysitting, before and after-school programs, and sick childcare. Transportation fees provided by the childcare provider are also covered. It is important to note that fees associated with kindergarten and tuition for first grade and above are not eligible for reimbursement.
To use the FSA funds, the custodial parent pays for the childcare expenses out of pocket and then applies for reimbursement. They will need to complete a claim form and attach receipts or proof of payment. The receipt must include specific information such as the child's name, the provider's name, and the date of service.
The maximum contribution to a Dependent Care FSA is $5,000 per year for those who are single or married and filing jointly. If the custodial parent is married and filing separately from their new spouse, the maximum contribution is $2,500 per year. It is important to plan the annual contribution amount carefully, as any unused funds within the specified time frame will be lost.
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Frequently asked questions
It is a spending account that lets you set aside money on a pre-tax basis to pay for qualified childcare expenses for children or other eligible dependents.
Dependent Care FSAs are only available to workers whose employers offer them. If you are married, both you and your spouse must work and earn an income to qualify for reimbursement unless one spouse is between jobs and actively looking for work or is disabled and unable to work. If divorced, only the parent with custody of the child can use FSA funds for childcare.
Actively looking for work means researching and applying for jobs, attending interviews, or related activities.
Examples of eligible expenses include senior daycare, child daycare, babysitting, before/after-school programs, sick childcare, transportation fees, and miscellaneous fees related to dependent care.
