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Using a Dependent Care FSA to Save on Child Care Costs

Tuesday August 22nd 2017

FSA-2According to statistics from the U.S. Bureau of Labor Statistics, the number of dual-income families has increased steadily in the recent past. In 2016, of the 34.2 million American families that include children under the age of 18, 61.1% had both parents employed. More than half of mothers with children under six years old are in the labor force, while three-quarters of mothers with children ages 6 to 17 years old are working.

Higher cost of living and the desire to maintain and advance in a career are two of the most common reasons that both parents in a family work. For parents in this situation, it’s critical to have child care that is reliable, trustworthy, and works for everyone in the family. Having a nanny or babysitter who is constantly calling in sick could put a damper on your professional aspirations.

The cost of childcare is also something that parents have to consider. Depending on what arrangement you choose, the total can vary, but the national average weekly rate at a day care center in 2016 was $211. The average weekly rate for a nanny was $565. These averages are based on one infant child.

Childcare is not cheap, but a dependent care flexible spending account (FSA) can lighten the burden on working parents. This account allows you to set aside pre-tax dollars to pay for dependent care while you and your spouse (if you’re married) are at work or school. Not only can the dependent care FSA be used for young children, but care for an elderly or disabled dependent also qualifies.

Watch our dependent care video

Employees using the dependent care FSA can save up to 30% on eligible expenses. But that number might not be enough to really show how this account can benefit you. Let’s say you contribute the maximum amount to your dependent care FSA for the year, which is $5,000 for married couples filing jointly. (The limit for married couples filing separately is $2,500.) The average tax rate in the U.S. is 28.9%, so multiply that by the $5,000 total. You could save $1,445 simply by setting that money aside to pay for childcare, which you’re already paying for anyway.

There are two ways to get the money out of the dependent care FSA. The first option is to use your FSA debit card to pay your childcare provider, if he or she accepts credit card payments. If your provider doesn’t take credit cards, perhaps because he or she is a family member or neighbor who comes to your home to provide care, simply pay for the care and submit the receipt for reimbursement. You’ll get reimbursed with the money you set aside, often right to your bank account or via a mailed check.

Through Infinisource Benefit Services’ iFlex mobile app, uploading receipts and documentation to submit for reimbursement is easy. You can use your phone’s camera to snap an image of the receipt, or use the online portal to submit PDFs.

No matter how you look at it, a dependent care FSA is the right choice for families with working parents.

View the dependent care infographic

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