It can be a bit of a struggle to figure out what to do with your kids once they’re home for the summer. Dependent Care Account to the rescue!
No more pencils, no more books
No more teacher’s dirty looks…-School’s Out, Alice Cooper
If you have a Dependent Care Account, you may be able to use it to pay for summer child care. Let’s start by defining what a Dependent Care Account is and then look at how to use it to pay for summer child care.
What is a Dependent Care Account?
A Dependent Care Account is an account that companies can offer to employees to help pay for out of pocket expenses related to dependent care, most notably child care or elder care.
Employees sign up for the account during their regular benefits enrollment period and can put up to $5,000 in the account. However, if either you or your spouse makes less than $5,000 a year, you cannot elect the full $5,000. You can only elect up to the full salary of the spouse that makes less than $5,000 annually.
For example, let’s say Mark and Brittany are married and filing jointly, but Mark makes $4,000 and Brittany makes $40,000. In this case, the couple could only set aside a maximum of $4,000 in their Dependent Care Account.
The money accumulates over the course of the plan year through payroll deductions.
As great as all that is, the main perk of the account is that it is funded with pre-tax money. The money pulled through payroll deductions and put into the account comes out before taxes. This reduces the employee’s taxable income, saving them hundreds of dollars each year, depending on their tax bracket.
Employees can pay for eligible child care expenses out of pocket, and then reimburse themselves from the Dependent Care Account.
Paying for summer camp
In order to use a Dependent Care Account to pay for summer camp, the camp has to meet certain conditions:
Condition 1: It cannot be an overnight camp.
Condition 2: Your child’s attendance at the camp must enable you and/or your spouse to be gainfully employed, look for work, or attend school full-time.
Condition 3: If the camp is part of a day care, the day care must meet state day care regulations.
In addition to making sure the child care is eligible, you also need to make sure the dependent receiving care is eligible. Learn more about the requirements for who qualifies as a dependent.
Can I use a babysitter or nanny for child care?
Yes. Your Dependent Care Account can be used to pay for a nanny or babysitter as long as it satisfies the first two conditions listed above.
See a full example of how the Dependent Care Account works by reading this story of how one couple saved.
If you found this article helpful, you may also enjoy these blogs on Dependent Care:
Dependent Care FSA or the child and dependent care tax credit?
Don’t touch that! and other summer wellness tips
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