What is it and who is eligible to participate?

The Dependent Care Flexible Spending Account under IRC Section 125 allows you to avoid both FICA (7.65%) and Federal Income Tax (15%, 28%, 31%) on qualifying child and dependent care expenses. In order to participate in this plan, you, the employee, and your spouse if you are married, must meet the following:

· The care for which you are paying must be for one or more qualifying dependents

· You must keep up a home that you reside in with the qualifying dependent(s).

· You and your spouse must have earned income during the year unless your spouse is a full-time student or is unable to care for himself/herself

· Your dependent care expenses must be incurred so that you can work or look for work

· The payments you make for dependent care must be to someone you or your spouse cannot claim as a dependent

What dependents are eligible for this plan?

· Your dependent under age 13 whom you can claim as a dependent for income tax purposes.

· Your spouse who is physically or mentally unable to care for himself/herself

· Your dependent who is physically or mentally unable to care for himself/herself, and for whom you can claim an exemption for income tax purposes.

Eligible Expenses

To be eligible for reimbursement, the expenses you incur must enable you, and your spouse if married, to be employed or to look for employment. If this requirement is met, then the following expenses are eligible for dependent care reimbursement:

· The cost of care provided outside your home if the care is for a qualifying person under age 13, or any other qualifying person who regularly spends at least eight hours each day in your household. This includes:

* Care provided by a dependent care center if the center complies with all state and local regulations governing the center.

* Day care costs incurred while your qualifying dependent is in day camp

· When your child is below the first grade, you can be reimbursed for the costs associated with the care of your child, if you can separate the cost of schooling from the cost of care. If the cost of schooling is incident to and cannot be separated from the cost of care, then the total cost is eligible for reimbursement. Kindergarten is not reimbursable.

· When your child is in the first grade or higher, but under age 13, you must separate the cost of schooling from the cost of care in order to be reimbursed for the cost of the care.

· The amounts you pay for dependent care services to relatives who are not your dependents.

If you need clarification on the eligibility of an expense, contact your Flexible Spending Account program administrator. You can also refer to IRS Publication 503: "Child and Dependent Care Expenses" which you can order by calling the IRS at 1-800-829-3676.