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\nSchool\u2019s out! Summer is here, and it\u2019s the time of year when working parents have questions about using their Dependent Care Spending Accounts (DCSAs). Are summer camp expenses eligible? What about day versus overnight camps? Employers and benefit advisors want to be ready with answers about this valuable benefit program.
\nThe following are the top summertime questions about DCSAs and reimbursable expenses:
\n1. What are the basic rules for reimbursable expenses?
\nDependent care expenses, such as babysitting and daycare center costs, must be work-related to qualify for reimbursement. Work-related means the expenses are for the care of the employee\u2019s child under age 13 to allow the employee to work. If the employee is married and filing jointly, the employee\u2019s spouse also must be gainfully employed or looking for work (unless disabled or a full-time student).
\nIn some cases, expenses to care for a disabled dependent, regardless of age, may be reimbursable. This article focuses on expenses for children under 13 since those are by far the most common type of DCSA reimbursement.
\n2. One of our employees and his family are taking a two-week vacation this summer, but his children\u2019s daycare center will charge its regular fee. Are the expenses reimbursable even if the employee and spouse are off work?
\nYes. In most cases, expenses are not eligible unless the dependent care services are necessary for the parents to work, but some exceptions apply. The IRS rules for DCSAs provide that expenses during short, temporary absences are eligible if the employee has to pay the child\u2019s care provider. Absences of up to two weeks are automatically considered short, temporary absences. Depending on the circumstances, longer absences also may qualify.
\n3. During the school year, our employee uses her DCSA for her 10-year old\u2019s after-school daycare center expenses. This summer, the child\u2019s daycare will be provided by her 20-year old sister. If the older daughter bills for her services, are the costs eligible for reimbursement?
\nThe answer depends on whether the employee or spouse can claim the older daughter as a tax dependent. If the older daughter can be claimed as a dependent, whether or not the employee actually claims her, she is not a qualifying dependent care provider under the DCSA rules.
\nIf the older daughter cannot be claimed as a tax dependent, her charges for providing care are eligible expenses. The specific rule is that a child of the employee, whom the employee cannot claim as a dependent, may be a qualifying provider if the child is age 19 or older by the end of the year.
\nNote that the employee\u2019s spouse or the child\u2019s parent is never a qualifying provider.
\n4. One of our employees has to pay an application fee and deposit before her child starts attending a daycare center this summer. Are those expenses eligible for reimbursement?
\nPrepaid expenses are eligible for DCSA reimbursement, provided the costs are required in order for the child to receive care. In this case, after the daycare center begins providing care, the employee can be reimbursed for the application fee and deposit she paid. On the other hand, if the employee cancels and her child does not attend, then the application fee and deposit are not eligible expenses.
\n5. An employee will pay day camp expenses for his 8-year-old son and overnight camp expenses for his 12-year-old daughter this summer. Are both types of expenses eligible for reimbursement?
\nThe day camp expenses generally are reimbursable. Expenses for overnight camp, however, are not eligible since overnight care is not work-related.
\nUnder the IRS rules for DCSAs, expenses for food, lodging, clothing, education, and entertainment are not reimbursable. If, however, such expenses are small, incidental expenses that cannot be separated from the cost of caring for the child, they may be included for reimbursement.