Dependent care Flexible Spending Account (FSA)
Made possible by Section 125 of the Internal Revenue Code and subject to IRS regulations, and offered at USC through WageWorks, a dependent care FSA can protect up to $5000 a year per employee from any federal, state, or Social Security tax. If you pay for dependent care so you can work, this FSA may save you money.
If you’re looking for information on health care FSAs, visit that webpage.
If you’re a Verdugo Hills employee, your Flexible Spending Account is administered by a different third party provider – visit that webpage.
How dependent care FSAs work
- You choose an amount – up to $5000 a year – for dependent care expenses.
- Calculate expenses carefully – any unused amount remaining in your dependent care account at the end of the calendar year will be forfeited.
- The amount you select is then deducted from your paycheck in equal increments over the full 12-month calendar year (except for faculty who opt to receive their base pay over a shorter cycle).
- Enrollment is via Workday; enroll for your FSA within 30 days of hire date, and every year thereafter during open enrollment (you must re-enroll each year), or when you have a life event status change.
- If you begin an account mid-year due to enrollment as a new hire or a status change, eligible claims must be for services rendered after the effective enrollment date.
- Because the amount you set aside in your FSA is not taxed for Social Security purposes, your future benefit from Social Security may be reduced slightly.
- Children under age 13
- Dependent (child, spouse, parent, grandparent, brother, sister, etc.) who is unable to care for him/herself because of a disability and spends at least 8 hours a day in your home
- Before/after school care
Expenses that are NOT eligible
- Educational programs
- Sleepover camps
Other eligibility information
If you are married, both spouses must work in order to qualify, and the amount set aside cannot exceed your earned income or your spouse’s earned income, whichever is less.
You also qualify if your spouse is a full-time student, or physically or mentally disabled – under these circumstances, you generally may set aside up to $200 a month for one dependent and up to $400 a month for two or more dependents.
Please note: Each year FSA plans must pass a non-discrimination test to show they do not favor highly compensated employees regarding eligibility, contributions and benefits. If USC’s plans do not pass the test, USC may reduce your election(s) during the year if you are a highly compensated employee as defined by the Internal Revenue Code. Benefits will notify you if it becomes necessary to reduce your contributions.
When you can use the money
Unlike a health care FSA, money is not paid in advance – your dependent care expenses are only reimbursed up to the current balance in your account. However, if you leave USC employment, expenses incurred in the previous year can be submitted following your termination date subject to the filing requirements below.
The IRS requires you to provide a receipt that includes the name, address, and taxpayer identification number of the person or organization providing your daycare services. Be aware that your W2 tax form will reflect the amount set aside in your dependent care FSA. Also, the money you set aside in a dependent care FSA will reduce – dollar for dollar – the maximum amount of expense you can apply toward the federal dependent care credit on your income tax return. Consult your tax advisor.
Dependent care services must be rendered by December 31 of the calendar year in order to qualify – there is no grace period.
WageWorks | www.wageworks.com