If you’re wondering what the difference is between a Medical Flexible Spending Account (Medical FSA) and a Dependent Care Flexible Spending Account (DC FSA), you are not alone. Maybe you didn’t realize there is more than one type of FSA to choose from.
Approximately 1 out of 3 people* (32%) do not understand that separate elections must be made for Medical and Dependent Care Accounts.
If your employer offers both plans during your benefits enrollment, you’ll want to be familiar with what each plan covers. Both a Medical and Dependent Care Account help you contain out of pocket expenses. However, there are key differences between the plans regarding what they are used for.
We’ll review and clarify those key differences, along with common questions and how to decide which plans are the best option for you.
What do I use this for?
A Medical FSA covers health and medical expenses for both you and your dependents to promote general well-being.
A DC FSA covers daycare expenses for your eligible child (as long as her or she is under 13 years of age). It can also cover costs incurred to care for an adult dependent who is incapable of self-care.
Now that you know the key differences between a Medical FSA and Dependent Care FSA, let’s review some common questions people have about these accounts.
Did You Know? Many people with both FSAs incorrectly believe a DC FSA is used to pay for a dependent’s medical expenses.
Medical FSA and Dependent Care FSA
Can I have a Medical FSA and Dependent Care FSA at the same time?
Yes. Participation in each FSA is completely voluntary – you can have one of the accounts, both at the same time, or neither.
If I run out of money in my Medical FSA, can I use money from my DC FSA to cover my medical expenses (or vise versa)?
No. Money directed to one type of Account can be used only for expenses relating to that Account. This holds even if all the money in one Account is not used and the other Account runs short.
When are the funds in my account available?
With a Medical FSA, your entire election is available on the first day of the plan year. The funds in a DC FSA, on the other hand, are only available as deposits are collected through payroll. Many people who submit DC FSA claims think they will be paid immediately. However, DC FSA claims are only paid as deposits from payroll are made.
Can I pay my deductible with my Medical FSA?
Yes. Your deductible is considered an eligible expense that can be fully paid using funds from your Medical FSA.
Are my medical insurance premiums eligible expenses under my Medical FSA?
No, insurance premiums of any kind cannot be paid using your Medical FSA.
Dependent Care FSA
Is it more advantageous to have a DC FSA or to claim the Child Care Tax Credit on my income tax return?
My spouse and I have the option to sign up for a DC FSA through our respective employers. Can we both put the maximum amount allowed into our accounts?
No. You can each elect a Dependent Care FSA at your respective workplaces, but the total dollar amount for your household is limited to the smallest of the following amounts:
- $5,000 if single or if married and filing jointly; $2,500 if married and filing a separate return.
- Your earned income.
- The earned income of your spouse.
Want more answers?
Visit BRiEduction. Login as a guest user and go to the FSA section. Click the FSA FAQs button. Select the FSA Medical or FSA Dependent Care tab.
Which one is right for me?
That’s a trick question. You don’t have to choose one or the other. Depending on your family’s need and your financial situation, you might want to consider having both accounts. If you don’t have any eligible children or a qualified adult dependent, a Medical FSA is the best (and only) option. If you have two or more children, it may even make sense to enroll in the DC FSA and receive a partial tax credit.
Now that you know the key differences between these accounts and how to find answers to common questions, you can make an informed decision about which one (or if both) is best for you and your family. When your company’s benefits enrollment comes up, you’ll know exactly what you want and what to choose.
*Bright Ideas Prize Contest. Benefit Resource ran its “Bright Ideas Prize Contest” from October 2017 through December 2017. The contest was available online and was open to all eligible employees within clients of Benefit Resource. Respondents were challenged to answer questions about pre-tax benefit accounts. Respondents were asked to identify which accounts they had previously participated in, but were presented all questions regardless of their reported participation. The responses and results were tallied from over 8,000 respondents.