A Dependent Care Reimbursement Account (DCRA) is designed to help you obtain possible tax savings for your child or elder care expenses (i.e., day care costs).
You may be interested in the DCRA if you have:
A child or children living with you under age 12, and for whom you claim dependent status on your income tax return;
A disabled spouse; or
A dependent relative (such as a parent or sibling) who is incapable of self-care and for whom you claim as a dependent on your income tax return.
Each year, you may contribute up to $5,000 to your DCRA. If you're married, the amount you may put in your account is limited by a number of IRS rules:
If you and your spouse/domestic partner file separate tax returns, the most you may set aside every year is $2,500 each.
If your spouse/domestic partner also participates in an employer-sponsored DCRA, the total amount you and your spouse/domestic partner may set aside in both of your DCRAs can not be more than $5,000.
The total amount you and your spouse/domestic partner set aside can't be more than either your annual income of your spouse's/domestic partner's annual income. If your spouse/domestic partner is incapable of self-care or is a full-time student for at least five months during the year, the IRS assumes that your spouse's/domestic partner's monthly income is no less than $250 if you have one eligible dependent and $500 if you have two or more eligible dependents.
You may have to pay taxes for any expenses paid for the child of a domestic partner who you cannot claim as your own dependent.
Eligible Dependent Care Expenses
The IRS has specific guidelines about the types of eligible dependent care expenses that you can claim and how to obtain reimbursement for them. Eligible dependent care expenses include:
The cost of care at a qualified day care center that complies with local laws, gives care for more than six people, and receives payment for its services.
Nursery school expenses.
Payment to a private school or other provider for before- or after- school care.
The cost of care at a day camp, or the portion of overnight-camp expenses that is for day care.
Amounts paid providers who care for your dependent while you work if they are not your spouse/domestic partner, your child under 19, or someone else you claim as a dependent.
Social Security and unemployment taxes you pay an eligible provider.
For a list of eligible and ineligible expenses, contact your tax advisor, call the IRS at 1-800-829-3676, or visit the IRS Web Site at www.irs.gov.
Things to Consider before Enrolling in a DCRA
Before participating in a or a DCRA, you need to carefully estimate the expenses you’re likely to incur and consider whether those expenses are eligible for reimbursement. To help you plan, consider these questions:
What were your out-of-pocket costs for dependent care this year?
What do you expect your out-of-pocket dependent care expenses to be next year?
Are you expecting a baby? If so, estimate your day care expenses and consider whether DCRA or the dependent care tax credit makes the most sense for you.
Does your spouse have a DCRA available through his or her employer? If so, how do you want to coordinate your accounts?
Do you have other eligible dependents for whom you want to use the DCRA?
If you are estimating dependent care expenses during a year when your child turns 13, be sure to consider the impact this will have on your annual calculation.
Determining Your DCRA Contributions
You can use the HCRA/DCRA Reimbursement Calculator Tool located on the Benefits Center web site to help estimate your and your dependents’ expenses for the coming year. You may want to review your bills and checkbook register for the previous 12 months as you estimate your upcoming expenses.
Remember to estimate conservatively – the IRS requires that you forfeit any amounts left in your accounts after the claim-filing deadline. In addition, you cannot change the amount you elect unless you experience a Qualified Life Event.
You must file a DCRA claim form together with receipts and provide the following information in order for your claim to be processed. The following information must be on the claim form and the receipts:
Name and address of Day Care Provider
Tax I.D. Number or Social Security Number of Provider
Dates of Service
Name of Dependents(s)
Dollar Amount for Day Care Services
Signature of Employee
NOTE: Your claim will be delayed if the above information is incomplete. You may file a claim for reimbursement after the first payroll deduction has been taken.
When you have Dependent Care expenses, the Internal Revenue Code gives choices with respect to income taxes.
A DCRA allows you save on dependent care expenses by paying them with before-tax dollars. Another way to save on dependent care expenses is to take advantage of the dependent care tax credit on your federal income tax return. The amount of the federal tax credit depends on your income and the number of children you have. Keep in mind that you can’t use both a DCRA and the dependent care tax credit, so you may want to consult a tax advisor to determine which one gives you greater tax savings.
Other IRS Rules:
You can’t use DCRA dollars to pay health care expenses
You can’t stop, start, or change your DCRA deposits outside Open Enrollment unless you have a qualifying life event such as marriage, birth of a child, divorce, change in spouse’s employment, etc., Change in dependent care provider charges.
Please consult the Plan Document regarding events that allow you to change your DCRA deposits. For more information, obtain a copy of the County’s Section 125 Plan Document which is available on the Benefits Center Web Site or by calling the Benefits Resources Line and speaking with a Benefits Specialist. For additional information, you may also call the IRS at 1-800-828-3676 or visit www.irs.gov
About This Information
This information is intended to give you an overview. Actual benefits are determined under the provisions of the Plan Document. Should any conflicts exist between this website information and the Plan Document, the Plan Document shall prevail. You may view and print the Plan Document by logging onto the Benefits Center Web Site and click on “Review Plan Details” and Section 125 Plan. You will need your Social Security Number and PIN to access the Benefits Center Web Site and Resource Line.