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Asked and Answered: What's the difference between a nanny and a babysitter?
For a parent, there may be nothing better in the world than finding someone trusted to take care of your child — bonus points if your if your kid takes to this person right away. What would be even better is saving money on these costs, maybe using your dependent care FSA (DCFSA).
However, you can't just find someone and pay them, and have it count as a qualified medical expense. If you're wondering if nannies and babysitters are DCFSA-eligible, the answer is (as frustrating as this can be) "it depends."
A DCFSA is a type of specialized account that lets you contribute pre-tax dollars towards expenses related to caring for a dependent while you or your spouse are working, attending school-full time or looking for work. Both you and your spouse can contribute up to $5,000 per year and you'll need to use up your funds before the end of the calendar year.
In terms of eligibility, the primary difference between a nanny and a babysitter is that a nanny is typically hired on a regular, ongoing basis. Whereas a babysitter is someone who is typically hired at an hourly rate to watch your child on an as-needed basis.
Nannies are also a bit more invested in the household because they're typically around the child throughout all daily activities. You can hire full-time or part-time nannies and some will also do other duties such as running errands and even light housework.
Are either DCFSA-eligible?
The short answer is "yes, with exceptions." Because a DCFSA is only for those who are employed, are looking for work or are in school full time, any child care expenses incurred have to be for those purposes. If you're hiring a babysitter for a few hours so you can go to a job interview that's fine. However, if it's for your weekly date night, don't try and claim it.
For nannies, you can only get reimbursed as a qualified expenses during the time you're working. As in, if you hire a nanny full-time, you may not be able to use your DCFSA funds to pay for the entire costs.
With babysitters, you can hire a relative as long as they're not claimed as a tax dependent on your tax return. For example, your aunt who lives 15 minutes away is fine but your teenage daughter won't count.
Whether you're hiring a nanny or babysitter, you'll need to provide detailed information in order to get your expenses fully reimbursed. Like with all FSAs, you'll need to provide receipts detailing information about the caretaker and the amount paid.
In addition, you'll need to this person's information, like name, permanent address, any licensure, and their tax identification or Social Security number.
If you're unsure whether hiring your babysitter or nanny will allow you to get your DCFSA funds reimbursed, it's best to check with your provider. If it counts, make sure you are up to date on your paperwork so you can get your reimbursement.
From FSA basics to the most specific account details, in our Asked and Answered column, our team gets to the bottom of your most-pressing flex spending questions. It appears on Wednesdays, 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.