Vision Payroll

This week’s question comes from Brent, an HR Director. I read about employees being reimbursed through a dependent care flexible spending arrangement (FSA) for summer camp costs and need more information. What are the tests for reimbursement of expenses by a dependent care FSA? Answer: Plans may have different forms that must be completed to receive reimbursement, but the expenses themselves must be qualifying expenses to be eligible for reimbursement.

Test for Qualifying Expenses

To be eligible for reimbursement under a dependent care FSA, an employee must meet all of the following tests:

• Qualifying Person: The care must be for one or more qualifying persons.
• Earned Income: The employee (and spouse, if filing jointly) generally must have earned income during the year.
• Work-Related Expense: The employee must pay child and dependent care expenses so that the employee (and spouse, if filing jointly) can work or look for work.
• Care Provider: The employee must make payments to someone the employee (and spouse, if filing jointly) cannot claim as a dependent. If paid to a child of the employee, the child must also be age 19 or older by the end of the year. Payments cannot be made to:
  • The employee’s spouse, or
  • The parent of the employee’s qualifying person if the qualifying person is the employee’s child and under age 13.
• Filing Status: The employee’s filing status must be single, head of household, qualifying widow or widower with dependent child, or married filing jointly. Married employees must generally file a joint return.
• Provider Identification: The employee must identify the care provider on the employee’s income tax return.

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Contact Vision Payroll for further information on the tests for reimbursement of expenses by a dependent care FSA.

This week’s question comes from Casey, an HR director. We have a dependent care flexible spending arrangement (FSA) and one of our employees has asked to be reimbursed for camp costs paid for her son. Can camp costs be reimbursed under a dependent care FSA? Answer: Camp costs can be reimbursed under a dependent care FSA in some circumstances.

FSAs Use Pre-Tax Dollars to Pay Qualified Expenses

Employers may set up FSAs (sometimes called flexible spending accounts) that allow employees to elect to contribute a portion of their pay to their FSA account. The amount paid into the FSA can be used to pay qualifying expenses of the employee. Most plans are set up to pay medical or dependent care expenses. The main advantage is that money is contributed to the plan on a pre-tax basis and is not taxed upon withdrawal if used to pay qualifying expenses.

Summer Camp Costs May Qualify for Reimbursement

While the cost of attending overnight camp does not qualify as an allowable expense, the cost of day camp may qualify as an allowable expense. The day camp costs must meet all the other requirements of §129 of the Internal Revenue Code of 1986 to qualify.

Contact Vision Payroll for Further Information

Contact Vision Payroll today for further information on setting up or maintaining a dependent care FSA.