During a time when schools, daycare facilities, and summer camps may be up in the air, you may be looking for alternative means of childcare. What about Dependent Care FSA babysitter hiring? Is it allowed? What do you need to know?
Before we get into that, a quick tip for those whose need for child care has either increased or decreased due to COVID-19. Changes in the cost of child care is considered a qualifying event. This means you are permitted to change election amounts.
Can you hire a babysitter using Dependent Care FSA funds?
In short, yes! A Dependent Care FSA allows you to set aside tax-free dollars from your paycheck to pay for eligible child or adult dependent care expenses. In addition to care options such as day camps and after-school care, in-home care through a babysitter, nanny, or au pair would be eligible.
All care options must be used “so you (or your spouse) can work or look for work”. So no, you unfortunately can’t hire a babysit for date night using Dependent Care FSA funds.
Who are you allowed to hire as a babysitter?
You may be exploring a lot of options now. Options may include professional nannies, neighbors, and even family members. Fortunately, all of these are considered eligible child care options.
This person babysitting cannot be:
- Your spouse
- Your child who is under the age of 19
- The parent of your qualifying dependent (this only applies if your qualifying dependent is your child and is less than 13 years old)
- A dependent claimed on your or your spouse’s federal tax return
There are also some nuances based on whether the person you hire would be considered an employee or self-employed. See what the IRS has to say about this.
What information do you need for reimbursement and compliance purposes?
In order to use funds in your Dependent Care FSA and be in compliance with the IRS, you will need information about the person you hire and the care they provided.
For your claim:
To submit a dependent care claim, we will need to know the type of service provided, date(s) the service was provide, the name of the dependent(s) cared for, the provider, and your out-of-pocket expense for the service.
See our Submitting Claims Walk Through for assistance.
For tax filing purposes:
As always, you have to report contributions to your Dependent Care FSA on your tax return. You will also need to provide information on the care itself. You need a name, address, and either a social security number or employer identification number depending on who provided the care.
See the tax topic on the IRS website for Child and Dependent Care Credit for more information. If you have any questions, you should contact a licensed tax preparer.