If you are going through a divorce and currently using a Dependent Care Flexible Spending
Accounts (FSAs), you need to know the specific rules associated with your Dependent Care FSA in order to be sure that you will continue to be reimbursed for your dependent’s medical care once divorced. Otherwise, it may come as a shock when you as the “former” spouse no longer have access to the FSA monies your spouse is accumulating at his/her employment, and your work does not provide or offer contributions to a Dependent Care FSA.
Dependent Care FSAs are a great way for employers to help their employees offset childcare costs. Many employers subsidize such benefits under a cafeteria plan, to encourage employees to participate. A Dependent Care FSA is funded through pretax payroll deductions to help pay for qualified expenses related to care for the participant’s child, disabled spouse, elderly parent, or other dependent who is physically or mentally incapable of self-care. Expenses for care of a qualified dependent are only eligible if the care enables you (or you and your spouse) to work, look for work, or go to school full-time. If your spouse is a stay-at-home mom or dad, you cannot participate in Dependent Care FSAs.
In accordance with IRS regulations, a flexible spending account for dependent care can only be used for up to $5,000 worth of expenses no matter whether the parents are filing their taxes together or separately. In other words, the amount of eligible expenses per family is the same no matter what the legal situation of the parents, or where the children live during the plan year.
One of the biggest mistakes divorced couples make, however, is thinking that they must be the parent claiming the child as a dependent on their tax return to benefit from utilizing the flexible spending account for dependent care eligible expenses. It does not matter what parent claims the child or children on their taxes as far as who can use a flexible spending account for dependent care eligible expenses. Rather, what matters is what parent has physical custody of the child or children when FSA monies are withdrawn and utilized. For example, if one parent has primary physical custody, even if the other parent has visitation rights that are consistent and regular, only the parent with primary custody can use a flexible spending account for dependent care eligibility expenses.
In the case of joint physical custody, each parent may be able to have a flexible spending account. A quick call to your plan administrator will clarify the plan’s parameters. However, even with plan consent, the money can only be used by the parent with the child at the scheduled time the expenses incurred.
Dependent Care FSAs can be a significant cost savings for parents, and the ability to defer $5000 a year pre-tax can give relief to parents dealing with rising child-care costs. Moreover, if your spouse is receiving a matching contribution to their deferral from their employer, the match is money that should be accounted for on the marital balance sheet.