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Flexible Spending and Child Tax Credit

Its tax time and a good time to review your plan for the upcoming year. Flexible Spending Accounts are something you should take advantage of if your benefits program offers it.

There are 2 common FSA one for medical expenses and one for dependent care expenses both have money taken out of your pre-tax dollars (So there is a benefit of not being taxed on earnings that are allocated to these expected expenses) Some companies also offer some money (usually around 250.00) If you participate in these programs. FSA for medical expenses can be used for Deductibles, Over the Counter Medications, Prescribed medications etc.

Currently, the IRS allows you to contribute up to $5,000 per year ($2,500 per year if married and filing separately) to a Dependent Care FSA for work-related dependent care expenses. Estimate what your daycare expenses will be for the year, and allocate enough from your pay to cover them. (Aetna has a FSA Savings calculator that can be useful)
The IRS does not limit contributions to a Health Care FSA, but many employers limit contributions to between $2,500 and $5,000. Your enrollment materials will specify a maximum annual amount you can set aside in your account.Consider last year's health-related expenses, including medical, dental, vision or pharmacy costs you foresee that might not be covered under your health plan. Also consider any changes in your family status that might have an impact on these expenses.
If you elect to take advantage of a Dependent Care FSA, you must complete IRS Form 2441 when filing your income taxes for the year. Your employer will report all dependent care contributions in Section 10 of your W-2 Form(s).
Dependent care FSA can be used to cover costs of Daycare and After School care and other programs. A more complete list can be found by clicking here HERE.
One of the downsides to FSA's are that they are a use it or loose it benefit meaning if you fund the dependent care FSA but do not file a claim in the required time frame you will loose the money you have allocated.
You pay your caregiver directly and get a receipt. Complete a Dependent Care Reimbursement Claim form and attach the receipt or have the caregiver sign the form. Send it in as instructed on your insurance companies form, and they will send you a check (or direct deposit) for your eligible expenses.
Under IRS regulations, you can only be reimbursed for incurred expenses. For example, you can submit January's dependent care expenses in February for reimbursement.
Some Medical Insurance companies will automatically reimburse you for qualified out of pocket expenses up to your FSA plan maximum.
There are some forms that need to be filed with your Tax filing around FSA so it is a good idea to have received your benefits prior to filing to keep things neat and in the same filing year. You can find answers to some Frequently asked Questions at Here.
Wikepedia on FSA

Note: This is just an account of some of my experiences any information contained here should not be taken as fact you should consult a tax professional before making any decision.

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