How much should you save?

The amount of money an employee puts into an employee reimbursement account depends on how much he or she estimates the child or dependent care and unreimbursed medical, dental, or vision expenses will be for the coming year. Employees decide in advance of the plan year whatever sum is necessary to pay for those expenses. The amount is then payroll deducted and placed into the employee reimbursement account. To seek reimbursement, each individual must file a claim with a receipt for the incurred expense.

Employees should determine their previous dependent care and medical costs in order to estimate their expenses as accurately as possible for the coming year. The money they decide to contribute would be deposited into their reimbursement account(s) in equal amounts each pay period. Claim filing is easy and payments will be made directly to the employees. Any money left in the account at the end of the plan year will be forfeited, and cannot be returned directly to the employee. The IRS has placed this strict rule on employee reimbursement accounts because of the special tax treatment they receive.

You cannot claim dependent care expenses that are more than your annual salary or your spouse's annual salary, whichever is less. If your spouse is disabled or a full-time student, the IRS assumes your spouse earns $200 per month (one dependent) or $400 per month (two dependents). The most you can contribute to the Dependent Care Account is $5,000 for a single parent with children; $5,000 for a married parent filing jointly; and $2,500 for a married parent filing separately.

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