What does the Day Care benefit election on your insurance mean?

Question

last year when I was signing up for my Insurance through work, there was an election for Day Care but when I clicked the link it said there wasn't currently any information available. I figured I wouldn't be able to do it anyway since my son is covered under dads insurance not mine. But if you have this Day Care election what does it mean? What does it cover?

Answer 1

It is best to talk with your Human Resources Representative or Benefits Manager about the benefits provided by your employer.

However, a Day Care benefit is likely a Day Care or Dependent Care Flexible Spending Account.  With that benefit, you elect to have a fixed amount of money withdrawal from your paycheck each payday and deposited into a Dependent Care Flexible Spending Account. (There might be also be an employer contribution.)

The benefit of having this money taken from your paycheck and deposited into the Dependent Care Flexible Spending Account or FSA is that you do not pay federal, state or social security taxes on that money - EVER  - but it most be used for day care for your child while you are working. You are required to obtain a weekly receipt from your day care provider which you then submit to your employer who authorizes payment for your day care expenses.

There are several ways to save tax dollars on day care expenses. You cannot take day care tax benefits when you file your taxes and use the dependent care flexible spending account. In general, if your total income (including your spouse's if you are married is over $50,000) the dependent care flexible spending account will save you more money than the options on the tax forms. Seek advise from a tax professional before making any decision that will impact your taxable income.