On day 2 of benefits month, we’re providing some information on a Dependent Care Flexible Spending Account, or an FSA. An FSA provides a great tax benefit to taxpayers with children under the age of 13 that are in childcare programs, like daycare. You can help reduce your payroll and income tax by contributing to an FSA.
Dependent Care Flexible Spending Account Overview
- May be offered by employer
- Must elect 2022 annual employee contribution during benefit enrollment period in 2021
- Employee contributions are not subject to payroll taxes nor federal and state income tax
- Distributions are tax-free if used for qualified out of pocket dependent care expenses
- For 2022, eligible expenses may be incurred for children under the age 13 or a spouse or relative who is physically or mentally incapable of self-care and lives in your home
- 2022 contributions must be used within the calendar year and grace period (2 1/2 months after year end)
- For 2022, annual contribution limit is $5,000 or earned income, whichever is less
- Important to note that expenses paid for with FSA money can’t also be used to claim the child and dependent care credit on form 2441
For more information click here.