The Dependent Care Reimbursement Account (DCRA) assists employees of Williams College in paying for work-related dependent care expenses on a tax-free basis. Information about DCRA including instructions for renewing your account or setting up a new account can be found here http://hr.williams.edu/benefits/flexible-spending/.
Participants may elect to set aside from $100 to $5,000 from their annual salary to pay dependent care expenses that are necessary for the employee to work. The IRS requires an annual enrollment for all FSA accounts. The amount of salary put in a DCRA is excluded from gross taxable income for federal and state income and Social Security tax purposes. Participants may draw on their DCRA account for the reimbursement of dependent care expenses throughout the calendar year. The expenses that may be reimbursed include expenses for services inside and outside the home, as well as expenses for services necessary for the care of both dependent children (under age 13) and dependent adults that are physically or mentally unable to care for him/herself.
The amount of the annual DCRA election must remain fixed for the entire year unless a participant has a change in family circumstances or other allowable change (see Benefit Changes Permitted After Open Enrollment).
An important point to remember: Federal tax regulations require that if a participant’s total annual reimbursements do not deplete his or her annual DCRA account, the balance or unused portion must be forfeited. Therefore, it is important that each participant estimate his/her qualifying annual dependent care expenses very carefully.
Visit DCRA Qualifying Expenses for a list of examples of eligible expenses. There are limits on the amount of dependent care expenses that can be paid through the DCRA account. These limits apply to the expenses paid through this plan and the amount of any similar reimbursements or child care subsidies an employee’s spouse receives from a similar account with his or her employer. The maximum limits differ for married people and for single people.
- The limit for single employees is the employee’s annual salary or $5,000, whichever is less.
- The limit for married employees who file a joint tax return is the employee’s salary for the year, the spouse’s salary for the year, or $5,000, whichever of the three is less.
- The limit for employees who are married but file separate tax returns is the employee’s salary for the year or $2,500, whichever is less.
Important details about an individual’s DCRA expense limits are available in the Benefits Office.
Comparison with Dependent Care Tax Credit
Some full-time Williams College employees may benefit from the federal dependent care income tax credit over the DCRA. Employees, especially those who are part-time, should compare the benefits of the DCRA with those of the federal dependent care income tax credit before enrolling in the DCRA. The tax credit applies to the same expenses as are eligible for reimbursement through the DCRA account. However, there are differences between the two tax benefits. Each individual’s financial circumstance will dictate whether the dependent care tax credit is more beneficial than DCRA. These factors must be considered: (1) the amount of one’s annual dependent care expenses, (2) the employee’s (and spouse’s) gross income, (3) current income and social security tax rates, and (4) state tax treatment of dependent care expenses. Employees who are unsure whether to use DCRA or claim the federal dependent care income tax credit should consult their tax advisors.
Required Tax Forms
Employees who have participated in the DCRA plan for a particular calendar year must file Form 2441 with their tax returns for that year. Further, employees are encouraged to keep on file Form W-10 (Dependent Care Provider’s Identification and Certification).
How to Apply for Benefits
Claims may be filed as frequently as desired by using the HealthEquity Card or submitting claim forms directly to HealthEquity. accompanied by receipts. The amount to be reimbursed is the lesser of the amount of the claim or the balance of the participant’s account. Claim forms are available at HealthEquity – see https://hr.williams.edu/benefits/flexible-spending/ for instructional guides and videos.
All claims for reimbursement must be submitted within three months of the end of the plan year (by March 31). If a participant leaves the college during the year, he or she also has three months after the end of the plan year (by March 31) to submit claims for DCRA expenses incurred before the date he or she has terminated employment.