A Dependent Care account allows you to set aside $5,000 on a pre-tax basis to pay for eligible dependent care expenses for a qualified individual. The next two questions are: what expenses are eligible and who is a “qualified individual”?
What expenses are eligible?
There are many expenses that can be considered eligible. For adult dependent care, these expenses are often not items, but types of places or places where care is provided. Additionally, before an expense is considered eligible, it must meet three criteria:
- Provide care to an eligible/qualified person
- Allow you to have earned income during the year
- Enable you to work or look for work
One type of eligible expense is an adult day care center. The FSA Store describes an adult day care centers as having “three main focuses: those that provide medical care, specialize in promoting social interaction, or those that focus on care for patients with Alzheimer’s disease. A wide variety of activities, care services and health monitoring is available to give at-home caregivers peace of mind that their dependents are safe (Mayo Clinic).”
Another question to ask, in determining the eligibility of an expense, is what is not eligible? A service that is not for physical care, such as education or meals, would not fall be considered an eligible expense.
Now that you know how to determine eligible expenses, it’s time to look at what it means for someone to be a “qualified individual”.
Who is a “qualified individual”?
Thankfully, this is easier to define than an eligible expense.
A qualified individual is defined as: “A spouse or dependent who is physically or mentally incapable of self-care and for whom you can claim an exemption”. You can see the full definition in our FAQs section.
There are two key components here:
- The individual is physically or mentally incapable of self-care
- The individual is a qualifying tax dependent
Where does this definition leave elderly parents? For many Baby Boomers, their parents increasingly rely on them for support, including health support.
If an elderly parent lives with a you and relies on you for at least 50% of their support, then the Dependent Care FSA may be used for day care expenses. However, the care must be necessary to allow you to work, and cannot be custodial nursing care. One final note regarding care: if you are married, the care must be necessary because your spouse also works, is looking for work, or is a full-time student.
Want more information?
It can be challenging to find information on adult dependent care expenses. However, the Department of the Treasury offers an entire guide on Child and Dependent Care Expenses. The document reviews what the credit is, who is a qualifying person, what can be paid for, etc. It also addresses what it means to need work-related income.
Finally, you can review our Dependent Care FSA Frequently Asked Questions page to see more information.