Explain using FSA to pay for daycare

[lisam]

We have an 18 month old that attends daycare, he goes full time during the school year and goes part time during the summer months. For the year total, we are spending about $13,865.

Our total yearly HHI is around $130,000 - give or take due to DH coaching various sports.

Right now we pay out of pocket and don't have an FSA account setup. I am wondering if we would be saving money using one. I wasn't sure how it worked, like would we have it automatically deducted from our paychecks and then could turn around and use that money the next week out of the FSA account? Or does it have to build up to then be used at a later date?

Also, would paying with an FSA account affect the amount we deduct on our taxes?

My limited knowledge is that you can put aside $5,000 (I think) a year and it's use it or lose it. Any very simple explanations would be appreciated.

Thanks!

[biscoffcookies]

If you open an FSA account, you can elect how much (up to $5,000) to put aside. The money is withdrawn from your paycheck. They then reimburse you from that account as you pay for daycare. The advantage is that FSA contributions are not taxed, so it will lower your income tax liability.

We use one and have not had any problems. I only wish we could put aside more!

ETA: they reimburse you once you fill out a form and submit the receipt for the daycare payment. We have it set up that our reimbursements are deposited directly in our checking account.

[pierogigirl]

I am no expert, but here is how it worked for us. You enroll during open enrollment (this may have passed - ours had to be in by early December). Unlike a health FSA, we had to wait until there was enough in the account to use it. We were issued a credit card, but our daycare doesn't accept ccs so we had to pay for daycare upfront. I would then submit a receipt once a month (but you could wait and submit all $5000 at once, or do it weekly). Since the money comes from your pre-tax income, it reduces your income on paper and you save money (multiply your tax rate by $5000 to see the approximate savings). I don't know if there's an income phase-out.

[curbsideprophet]

How mine works...I have the money taken out of my paycheck. I need to wait until the services have been given before I can be reimbursed. So we pay for the month of January in the beginning of Jan. I could not submit the claim until Feb. I also will not be reimbursed until there is enough money in my FSA account to cover the claim. Since we have 5k in expenses well before the end of the year, I choose to have more taken out per paycheck at the beginning of the year. The last few months of the year I have nothing taken out of my paycheck. This way I get 5k in the account sooner and do not need to wait until the end of the year to submit my final claim. Once my claim is processed the money is direct deposited into my checking account.

For most people it makes sense to use an FSA account if you have access to one.

[Deleted]

We pay the daycare and then submit the receipts to be reimbursed. They take the payments pre-tax out of each paycheck. You can't be reimbursed until the money is in the account but the charges can be from before once the money is there (as long as they are for the current year).

[karinothing]

I Just signed up for one this year. As far as I know we don't have to wait till we have 5K in order to be reimbursed so this may vary by company. The way my one coworker uses it she submits the receipt and then it pays her $192 (what is taken out of her paycheck each pay period to reach 5K by the end of the year) the Monday after payday (we get paid on Friday) until the 5K is reimbursed.

[jenjen]

It's more beneficial to do the FSA over claiming the dependent care credit (you can do one or the other for 1 child). If you make more than $40-45k (I can't remember the exact dollar) the credit is only 20%. Like others have said, doing the FSA reduces your taxable income, which is at a higher rate than 20%.

This is the first year I'm doing it and we can submit claims online and have the funds direct deposited into our bank account. I don't know if we have an option to withhold more early in the year but I plan to get a receipt once a month and submit a claim for $365 ($192.30/pay period). We can only be reimbursed for funds that have been withheld, I can't get all $5k back until its been withheld which is different than our medical FSA.

[zacksbride]

i love our FSA. it is super easy to use, just get a statement from daycare for what you have paid and submit it and then you get the money back. my understanding is that is is more beneficial from a tax standpoint to do an fsa than take the daycare credit.

i personally wait until the end of the year then submit $5K of receipts at once, and i put all the money in savings. feels like "bonus" money to us. but if you need the money that is taken out of your paycheck on a monthly basis, you can also submit receipts as you go to ge the money on a regular basis.

[Deleted]

To clarify, for ours, the money is taken out evenly out of each paycheck and whatever has been taken out, you can get reimbursed for anytime thereafter. For example, if you have $5000 in charges by June 30 that you submit for reimbursement, you'll only get $2500 at that point, and will get the rest as it is taken out of each paycheck. I hope that makes sense!

[Deleted]

I love having one. We can submit as soon as we have charges and we will get reimbursed as the money goes into our account.

So I put 2500 in this year. I can submit a receipt next week for 490 (one payment) but I will only be reimbursed 96 dollars (my paycheck contribution) - but it will automatically reimburse me up to the 490 without additional claims as the money goes into my account.

It i wait a few months until I've spent 2500on DC, I will get reimbursed each pay period until I reach2500.

[froggy76]

I don't think it really makes sense not to do it. The money you set aside doesn't get taxed, so if you set aside $5,000 and your tax rate is 25%, you will save $1,250 in taxes each year.

The biggest drawback for me is having to submit for reimbursement. I'm lazy, so I haven't submitted anything yet for 2012, and next week I'll just submit to get my whole $5,000 back. But if your budget is tight, you might want to get reimbursed more frequently.

[Ashley&Scott]

We do the full $5k.

ETA: our daycare filled out a form stating the weekly charge through the end of 2012. This way we were able to set up the entire year of FSA reimbursements with one claim form. It's nice that we don't have to get receipts to submit claims weekly, monthly, etc.

Our dc director mentioned this method & said it's great if your employer/FSA manager allows it, she was right. We did the paperwork once & are reimbursed every pay period.

This reminds me we need to fill out our 2013 reimbursement form.