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Dependent Care FSA 2023 Latest Announced Contribution Limits



Dependent Care FSA 2023

The IRS has officially announced adjustments to the 2023 FSA contribution limit on different tax-advantaged dependent and healthcare accounts. Many of the contribution limits are cataloged to cost of living adjustments. With this announcement along with the earlier announcement of the IRS, one can keep their pre-tax into their FSA, HSA, retirement plans, and transportation benefits.

Here, the people who have already completed the FSA 2023 enrollment are left with two options; they can either do nothing because it is not necessary to make the maximum election amount or they can start an open re-enrollment process and let the employees who want to increase their elections do it before December 31st. 

If you are someone who wants to know more about the latest FSA updates and wants to know more about FSA and how the whole system works, then this article is for you. 

FSA 2023 Overview

Before we deep into the latest announced FSA 2023 adjustments, let’s take a quick glance at FSA. FSA, also known as Flexible Spending Account is an account that allows you to keep a portion of your pre-tax for certain purposes like healthcare and dependent expenses which will lower the income tax that you need to pay. As already mentioned, there are two main purposes for which we FSA and the two are dependent care FSA and healthcare FSA.

Flexible Spendings Account 2023

Dependent care FSA is an account that will allow you to put aside a portion of your pre-tax like cover your dependent care expenses while you are working or will give your eligible dependent an option to attend school full-time when the two spouses of a family are working.

The next type of FSA is healthcare FSA. The healthcare FSA allows you to keep a portion of your pretax for healthcare expenses that aren’t included in any healthcare plans and this FSA is eligible for you and your dependent. 

How Does FSA Account Work?

Creating and managing an FSA is one of the best things that one can do to save money for small healthcare and dependent expenses. The first thing that you need to do to manage an FSA is you should estimate your annual healthcare and dependent care expenses and then you can contribute this amount on a pre-tax basis to the FSA. Here you don’t have to pay taxes for these expenses. 

So this is how the FSA works. If you are someone who earns $1000, your employer deducts $50 for FSA, so this means that you have $950 and your employer calculates your tax on that specific amount. One of the main things about FSA is that it is possible only if you have an employer and are under the age of 65. 

Signing up for FSA is quite simple. You can enroll in FSA when your company opens the enrollment period which is normally open from November to December. While enrolling, you only need to provide a few basic information, and an amount will be either deducted or on a biweekly basis from your account. 

Dependent Care FSA Contribution Limit

Dependent Care FSA covers your daycare expenses for your eligible dependent. The dependent care FSA is also known as a dependent care assistance plan or dependent care reimbursement plan.

The main purpose of dependent care FSA is to aid you in covering daycare expenses so that your eligible dependent can attend school full-time while a person or both parents can work full-time.

When we mention school full-time, it includes every dependent care expense such as preschool, summer camps, school after programs, and so on. The dependent care FSA can be used for an eligible dependent who is below the age of 13. 

The IRS has announced adjustments to the Dependent Care FSA 2023 contribution limits and it is the same as last year. The contribution limit of a single parent is different from two parents.

If the two spouses are filing, the contribution limit is different for spouses filing the FSA jointly and individually. So here is the table that will tell you about the Dependent Care FSA 2023:

Filing statusContribution limit
Single, head of household $5,000
Married, filing separately$2,500
Married, filing jointly$5,000

Dependent Care FSA 2023 Eligible Dependents

Even though people primarily enroll in dependent care FSA to support their child, the plan is also applicable for any dependent of yours which includes your spouse or relatives. Here are the people who are eligible dependents:

  • The Dependent Care FSA 2023 is applicable for children under the age of 13 who you will claim as an exemption for your trade purposes.
  • Another eligible dependent is a spouse who is physically or mentally unable to care for himself or herself and is one who stays with you for more than half of the year.
  • The third eligible dependent of Dependent Care FSA is a parent or a relative who is physically or mentally unable to take care of themselves but these relatives’ needs meet a few requirements. 

Dependent Care FSA 2023 Eligible Expenses

The list of eligible expenses that comes under Dependent Care FSA 2023 includes many things but the common expenses for which a person enrolls into Dependent Care FSA are given below:

  • Home-based licensed day-care
  • Licensed daycare center
  • Nursery school
  • Private baby sitter
  • Care providers for a physically disabled person
  • Summer camps
  • Private and public before and after-school programs

Advantages Of  Dependent Care FSA

  • One of the main advantages of Dependent Care FSA is budgeting your daily dependent care expenses. So here a specified amount is taken from your salary bi-weekly and monthly and will be reimbursed to you when you submit the claim for your dependent expenses. 
  • Another advantage of Dependent Care FSA is that tax savings are immediate. Here when a specific amount is contributed to your FSA, the tax will be calculated based on your lowest income of yours.
  • Your dependent care FSA expenses and records are kept safely. You can easily claim and reimburse the amount easily.
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