Real Money: Elder care and your DCFSA
As a parent, I'm always looking for the best ways to save money on child care — I talk to a lot of moms about this too. And if you're a parent, you may already know that a dependent care FSA or a DCFSA is a great way to save costs on child care expenses.
But did you know it could help aging dependents as well? As my parents get older, I can't help but wonder what would happen if they needed help. If you're in the same position, you should consider the DCFSA and whether or not you can save on costs by using pre-tax funds.
How does it work?
In order to claim reimbursement for qualified expenses for a DCFSA, you'll need a qualifying dependent. That means your elder dependent needs to live with you for a minimum of eight hours a day and be incapable of self-care. You'll also need to claim them as a dependent on your tax return.
Any expenses you wish to claim need to be related to caring for your dependent — these services are what allow you to attend school, work or actively look for work full-time.
As for how much you can contribute, it depends on how you file your taxes. If you're single or filing separately from your spouse, each of you can contribute up to $2,500. Those filing jointly can contribute up to $5,000, assuming each of you earn more than that amount each year.
If it's less, then you're limited to contributing to your DCFSA equal to the lowest earning spouse. For example, if you earn $10,000 a year but your spouse earns $4,000, then your DCFSA limit for the year can only be as much as $4,000.
Some qualifying life events will allow you the opportunity to change your DCFSA, such as changes in health care coverage, or if you suddenly need or no longer need elder care. It's best to contact your DCFSA provider if you're wondering about changes to your plan.
What counts as a qualifying expense?
According to the IRS, qualifying expenses are generally services that are primarily for the care and well-being on your dependent, whether it's in our out of your home. Qualifying care for your dependent must be to allow you and your spouse to work, go to school full time or to actively look for work. Medical expenses do not count as expenses for the DCFSA..
Some qualifying expenses include:
- Adult day care center
- Custodial elder care
- Day nursing care
- Elder care — in or outside the home
- Transportation to and from eligible care — provided by the care provider
- Registration fees required for eligible care
Remember you'll need to claim each of these expenses individually and provide proof of services. This may include medical documentation, receipts and other types of records — ask your DCFSA provider what's needed. It's better to have too much documentation rather than not enough. You don't want to be in a position where you can't claim your expenses.
Use your funds
Don't forget that you need you use up your DCFSA funds before the year ends or you forfeit the amount contributed. Your account may offer a grace period so you can spend down your funds, but that's not always the case. The best bet is to budget carefully for your elder care needs and check with your DCFSA provider on their specific rules and requirements.
Whether you budget week-to-week, or plan to use your FSA for bigger things, our Real Money column will help you maximize your flex spending dollars. Look for it on Tuesdays, exclusively on the FSAstore.com Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook, Instagram and Twitter.