he Helpr app features a built-in DCSFA tool to streamline the use of your DCFSA funds.
In 2016, CNN reported that in the United States, childcare now costs more than in-state college tuition, citing a report completed by the think tank, New America. According to New America, that number is significantly higher for full-time in-home care, the average of which exceeds $25,000 in every state.
In-home care expenses are DCFSA eligible expenses. However, both the availability and use of DCFSA care benefits have been historically low. In 2018, about 11.8% of all taxpayers claimed the CDCTC. Studies those this may be because employees simply don’t understand how to use DCFSA funds.
In this fact sheet, we cover the basics of who qualifies for DCFSA benefits and how to use DCFSA funds for in-home care the right way.
DCFSA, or dependent care FSA benefits, help working families pay for childcare and other dependent care. Funds can only be used for the care of qualifying persons for work-related expenses, which can include in-home care expenses. Since not all care expenses qualify, it’s important to understand who is a qualifying person, and what is work-related expense.
A qualifying person includes qualifying children or qualifying persons who are 13 years old or older.
Qualifying Children
To be a qualifying child, the child must be your dependent and under the age of 13. The IRS provides special guidance for situations involving divorced or separated parents in Publication 503.
Qualifying Person 13 Years Old or Older
A person who is 13 years old or older is a qualifying person if:
Qualifying persons can also include the your spouse if they were unable to physically or mentally care for themself and lived with you for more than half the year.
Various kinds of in-home care may be provided to your family members, however not all care can be paid for using DCFSA funds. To pay for care expenses with DCFSA funds, they must be work-related expenses.
To be a work-related expense, it must allow you to work (or look for work), and it must be to provide care to the qualifying person. An expense is for “care” if the primary purpose of the expense is for the well-being and protection of the qualifying person.
For in-home care to qualify as a DCFSA expense, it must allow you to work or look for work. So, for example, DCFSA funds can be used for after-school programming that runs until you’re done with work. However, they can’t be used to pay for babysitting on date nights or to attend weekend activities, as they will not be considered “work-related.”
For in-home care to qualify as a DCFSA eligible expense, the main purpose of the expense must be for the well-being and protection of a qualifying person. The most common in-home care expenses working parents pay for include payments for babysitters or payments towards elderly care for qualifying grandparents living at home.
Although not all household services qualify, they will if they are “at least partly for the well-being and protection of a qualifying person.” (IRS Publication 503, p. 7). For example, payments made to a housekeeper who cooks and provides babysitting to your 9-year-old at home while you’re at work will qualify, but gardening or driving services won’t unless they were minimal. If the housekeeper spends 10 minutes watering plants in the front yard, this would be considered minimal.
DCFSA funds can be used to pay family members like grandparents, aunts, or uncles, as long as they’re not:
Employees who hire a nanny for in-home care may have to pay employment taxes as “household employers.” These taxes may include Social Security and Medicare and Federal Unemployment Taxes (FUTA), or both. DCFSA funds can be used to pay these taxes.
Whether you owe taxes depends on whether you’re a household employer, how much you pay in wages to the household employee, and whether an exception applies.
First, you must be a household employer to be subject to these employer taxes. To be a household employer, you have to hire someone to come to your home and complete household work. According to the IRS, household work includes babysitters, caretakers, cooks, nannies, etc. If you hire any of these individuals through childcare or home care agencies, then you are not a household employer.
If you are a household employer, you must pay either Social Security and Medicare, or FUTA, or both depending on how much you pay your household employee. According to IRS Publication 926, thresholds are as follows:
According to the IRS, wages paid to your spouse or your child under the age of 21 don’t count towards the above thresholds. Wages paid to your parents, or an employee under the age of 18 at any time during that year may also be excepted, however, certain requirements must be met.