Building long term wealth involves small decisions and actions that combine over time to produce outsized benefits. One of the tools that can help you save on taxes while you’re taking care of your loved ones is the Dependent Care Flexible Spending Account (FSA). It’s another step towards financial stability that’s accessible to most working families. If you can set aside a bit from each paycheck, you can reap tax benefits of over $1000 annually and in so doing lessen the financial burden of dependent care.
5 Simple Steps to Setting Up Your FSA
Step 1: Check Your Benefits
First thing’s first—check with your employer. Is a Dependent Care FSA on your benefits menu? This step is all about exploring what’s already available to you. A quick chat with your HR department can set you on the right path. Many employers make this process easy during your annual benefits selection for the upcoming year.
Step 2: Determine if You Qualify For an FSA
Determining eligibility is the next step. Generally, this account is for those with dependents under the age of 13, or with disabled dependents, or elderly family members requiring care. The point is, you don’t have to be living a specific lifestyle to qualify and it’s not just for people with kids in daycare. Many types of families in many different situations can benefit.
Step 3: Decide Your FSA Contribution
Now its time to decide how much to contribute. In 2023, the cap is $5,000 for those married and filing jointly, and $2,500 otherwise. It’s all pre-tax, which means it lowers your taxable income. Even a small contribution can make a noticeable difference when tax time rolls around.
Consider this: By maxing our your FSA contribution at the $5000 level you could be reaping over $1000 in tax savings (depending on your tax bracket).
Step 4: Set Up Your FSA During Open Enrollment
Gone are the days of filling out endless forms. During your employer’s annual benefits selection period, setting up your Dependent Care FSA is typically very straight forward. You can easily designate your beneficiaries and decide the contribution amount for the upcoming year, all online.
Step 5: Document Eligible FSA Expenses
Last but not least, get acquainted with the types of expenses you can reimburse through your FSA. This usually includes childcare, day-care, before and after-school programs, among others. Keep your receipts and submit your claims as necessary. In my case, submitting FSA reimbursement claims is super easy and done through an app where I just snap a picture of the receipt, upload it and a a few business days later the funds are in my checking account.
There you have it! 5 straightforward steps to getting started with the Dependent Care FSA. With this account, you’re not just planning for the present – you’re getting rewarded with tax-savings for doing so