.

Dependent Care Spending Accounts

Through the Dependent Care Spending Account (DCSA), you can contribute funds to pay for eligible out-of-pocket dependent/child care expenses. Funds to be used for these expenses are deducted from your paycheck before taxes are withheld, which means you pay less in taxes. You can set aside between $260 to $5,000 per year in your DCSA to cover eligible dependent/child care expenses (listed below).

If you are single, you can be reimbursed for dependent/child care if you are unable to care for an eligible dependent while you work. If you are married, you can be reimbursed for dependent/child care expenses only if:

• The expenses incurred enable you and your spouse to work or look for work.
• Your spouse is a full-time student for at least five months during the year.
• Your spouse is incapable of self care.

Be careful with your planning. You should contribute no more than you expect to pay in during the year because, under current IRS regulations, any remaining balances in your account at the end of the year will be forfeited.

The combined calendar year contributions of you and your spouse to the DCSA are currently limited to $5,000 unless:

• you and your spouse file separate income tax statements, then the limit is $2,500
• your spouse’s earned income is less than $5,000, then his/her income amount is the limit
• your spouse is a full-time student or is incapable of self-care, then you can set aside up to $250 per month for one dependent or up to $500 per month for two or more dependents, even if your spouse has no earned income. The $5,000 annual limit still applies.

The IRS requires a provider tax identification number. Those expenses that qualify for the IRS dependent care tax credit generally include:

• Babysitters, other than a dependent of yours
• Daycare, day camps, nursery school, or other outside dependent or child care services
• Elder care for dependents who live with you and are declared on your tax return.

You can use the account to pay for the child or elder care of any dependent you claim on your tax return and who lives with you who is:

• under age 13 or
• mentally or physically disabled (including elderly dependent parents and disabled children of any age).

When enrolling in your Dependent Care Spending Account, ask yourself:

• What dependent care expenses do I expect to have next year?
• Will any of my dependents become ineligible during the next year (i.e., turning age 13)?
• Will my dependent care expenses change during the summer?
• Will my family be taking any vacations during the year?
• Do I have any dependents becoming eligible during the next year (IE. elder care)?

Dependent Care Spending Account Tax Considerations

When paying for eligible dependent care expenses, you have three options. You can:

1. Use the DCSA - The DCSA offers a way for you to save money by allowing you to pay for your eligible dependent care expenses with pretax dollars.
   
   However any expenses for which you receive a DCSA reimbursement will not be eligible for the federal dependent care income tax credit.


2. Take a Federal Income Tax Credit - You also can save money by using the federal income tax credit, but you cannot receive this credit for expenses that were reimbursed from your DCSA.
   
   Under the Internal Revenue Code, the tax credit equals a percentage of your dependent care expenses, up to $3,000 ($250 a month) for one dependent of $6,000 ($500 a month, until you reach the maximum) for two or more dependents. This amount may change from year to year - contact your tax advisor for details.


3. Combine the benefits of the DCSA with a Federal Income Tax Credit - If you decide to use a combination of DCSA reimbursement and the federal tax credit, the amount of your expenses that are eligible for the federal tax credit will be reduced by the amount of expenses you were reimbursed from your DCSA. The combined amount cannot exceed $5,000 in total.

In general, if your family income is more than $39,000 a year, you may want to consider using the DCSA only. However, everyone's situation is unique.

Eligible and Ineligible Expenses

For a complete listing of eligible and ineligible expenses payable from the Dependent Care Spending Account, refer to IRS Publication 503, available free of charge by calling 1-800-TAX-FORM or by logging on to www.irs.gov/publications/p503/index.html.

Reimbursement from your Dependent Care Spending Account

1. Determine if the expenses for which you would like reimbursement are eligible. In general, eligible expenses include those for child or dependent care that allow you or you and your spouse to work or attend school outside your home.
2. File for reimbursement with Health Design Plus by mailing them documentation of the eligible expense, which must include the facility or provider's name, address and telephone number, its provider ID or tax number, and a copy of the receipt. Approved reimbursements are issued twice per month.

You cannot be reimbursed for more than you have in your account at the time you submit your claim. You will receive reimbursements when sufficient funds have been deposited to your account according to the amount you've chosen to deduct from your paycheck.

All eligible DCSA expenses incurred within the current plan year can be submitted for reimbursement. Any expenses billed to you after December 31, for services incurred during the year, can be submitted for reimbursement through March of the following year. You can file for DCSA reimbursements as often as you like.