FAQ
What is a Dependent Care Reimbursement Account?
A Dependent Care Reimbursement Account covers day, home or nursery care expenses for dependent children (under the age of 13) or a disabled child. Employees who provide at least 51% of support for a disabled spouse or parent may also use the plan.
To be eligible for this account, employees must be working while their dependents receive care. When employees are married, their spouses must also be wage earners, full-time students, or disabled and unable to provide their own care. Employees may be reimbursed for bills from licensed nursery schools or day care centers or from individuals such as housekeepers who take care of their dependents when they work.
Take a look at how this account can help a married couple with one child, a total family income of $27,000 a year, $2,400 in eligible dependent care expenses and $90 a month in health insurance premiums:
| |
Without a Dependent Care Account |
With a Dependent Care Account |
| Gross monthly salary |
$2,250.00 |
$2,250.00 |
| Insurance premiums and Dependent Reimbursement Account |
$0.00 |
$290.00 |
| Adjusted pay |
$2,250.00 |
$1,960.00 |
| Federal Income tax (15%) |
-$337.50 |
-$294.00 |
| Social Security n(7.65%) |
-$172.13 |
-$149.94 |
| Pay after taxes |
$1,740.37 |
$1,516.06 |
| Insurance premiums and Dependent care (after taxes) |
-$290.00 |
$0.00 |
| Take-home pay |
$1,450.37 |
$1,516.06 |
|
In this example, your employee would save $65.69 per month, or $788.28 per year by using the Dependent Care Reimbursement Account and the pre-tax for insurance premiums. Expenses claimed under the reimbursement account are not eligible for tax deductions or credits when filing with the IRS.
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