DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT

DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT

 The City of Baltimore offers a number of benefits to better meet

your needs. However, even the best health care plans do not

cover expenses such as child or elder care. For these expenses

the City of Baltimore offers a Dependent Care Flexible Spending

Account.

The Flexible Spending Account (FSA) begins on January first of

each plan year. You must enroll within 60 days of your date of

hire, change in status, or during the City of Baltimore’s Annual

Open Enrollment.

What is a Dependent Care Flexible Spending Account?

As a working parent or a caregiver of an elderly parent, the tax

laws allow you to contribute money into a Dependent Care

Flexible Spending Account, before you pay taxes on the money,

thereby, saving you money. As you have out-of-pocket dependent care expenses, you can pay for these expenses with the pretax

money you have set aside.

Who can set up a Dependent Care FSA?

You may set up a Dependent Care FSA if you are an active employee of the City of Baltimore who is eligible to receive City Benefits.

How and when to enroll?

You are eligible to enroll in a Dependent Care FSA on your first day of service with the City or during Open Enrollment. As a new

employee you must elect to enroll in the Dependent Care FSA using the enrollment website, www.baltimorecity.essbenefits.com.

You must make this election along with any other benefits within 60 days of your date of hire.

Each year during Open Enrollment, you will be given the opportunity to open a Dependent Care FSA for the succeeding Plan Year.

If you fail to enroll in the Dependent Care FSA within your enrollment period, you shall be deemed to have elected not to

participate for the succeeding Plan Year.

During the plan year, you have 60 days from a qualifying event to open a Dependent Care FSA. A qualifying event can be the birth

of child, the loss of a dependent, marriage, divorce or the termination of your spouse’s employment.

Dependent Care Flexible Spending Accounts

If you are a working parent, you know that daily childcare expenses can really add up. With the Dependent Care FSA, you can pay for

those expenses with pre-tax dollars.

The most you can deposit to a Dependent Care FSA is $5,000 per family per year.

To be eligible to enroll in the Dependent Care FSA you must have eligible dependents and be in one of the following categories:

􀁹 Single person

􀁹 Person with working spouse

􀁹 Person with a spouse in school full-time at least five months out of the year (while you are working)

􀁹 Person with a disabled spouse unable to provide for his or her own care

􀁹 Person with a disabled adult dependent living with you such as a parent, brother or sister

Note: You must be working during the time your dependents are receiving care to qualify. You cannot use the Dependent

Care FSA to pay for evening or weekend baby sitters (unless, of course, you work during the evenings or weekends).

Who are eligible dependents?

For the purposes of the Dependent Care FSA, eligible dependents are limited to those individuals on your income tax return and must

be at least one of the following:

􀁹 Your child(ren) age 13 and under

􀁹 Your disabled spouse

􀁹 Your disabled child over age 13

􀁹 Other disabled adults provided they meet all of these criteria:

􀁹 They are part of your household

􀁹 They spend at least eight hours a day in your home

􀁹 They cannot care for themselves physically or mentally

􀁹 You provide at least half their support

Eligible Expenses

The following are typical of the expenses that can be paid with pre-tax dollars from the Dependent Care FSA:

􀁹 Licensed day care centers that meet all State and local regulations (a day care center is defined as any facility where six or more

people receive care at the same time for a fee)

􀁹 Services of a housekeeper who provides care at home for your dependent while you work

􀁹 The part of school tuition costs that pays for day care

􀁹 Summer day camp

􀁹 Care given in someone else’s home by someone other than your spouse or other dependent

Ineligible Expenses

􀁹 Unlicensed day care centers

􀁹 Care given by your spouse or another person you claim as a dependent for income tax purposes

􀁹 The portion of school tuition costs that pay for your child’s education or transportation

􀁹 Overnight camp

􀁹 Babysitters for times when you are not at work

􀁹 Nursing homes or institutions when the disabled dependent does not normally live with you

􀁹 Medical expenses for dependents

Tax credit vs. Dependent Care Flexible Spending Account

One issue to consider before you open a Dependent Care FSA is whether you should take the tax credit for childcare on your personal

income tax return or use the Dependent Care FSA. Expenses reimbursed from a Dependent Care Flexible Spending Account may not

be used as a federal income tax credit. You do not have the option of claiming the full amounts of both the tax credit and the FSA. The

tax credit will be reduced for every dollar you place in the Dependent Care FSA.

For 2006 the limit on the tax credit is $3,000 (for an individual child) or $6,000 (for two or more children).

You will have to determine which is better for your own tax circumstances by estimating your taxes using each method. As a general

observation, an individual or couple with taxable income of more than $24,000 might do better with the Dependent Care FSA than the

tax credit. For more information on the IRS Tax Credit please contact the IRS or a tax accountant.

Rules and Regulations for Dependent Care

Although the Dependent Care FSA provides real tax advantages, there are some important rules and restrictions.

This account has a “USE IT OR LOSE IT" provision. Any money left over in your account at the end of the year cannot be

carried over into the next year or returned to you. According to federal law, you have to forfeit the remaining balance left in

your account.

That is why it is very important to estimate your eligible expenses for the coming year conservatively and plan your

contributions carefully.

The amount deposited in this account cannot be “changed” after the Plan Year starts.

There are no provisions in the Internal Revenue Service regulations for employees to make “changes” to the Dependent Care FSA after

the start of the Plan Year, unless you have a change in status (see below for details). A Dependent Care FSA must be used for eligible

dependent care expenses.

Check your Dependent Care confirmation statement and January pay stubs to be certain that your deposit amounts are correct. The

only changes that will be made are those to correct processing errors made by the City.

When you sign up for a Dependent Care FSA, you decide how much to put in your account each pay period. That amount will be

deducted from your paycheck before taxes.

Minimum and Maximum Contributions

There are minimum and maximum contributions for the Dependent Care FSA. You can contribute any amount that falls between the

following limits:

Annually - $120.00 - $5,000.00

Weekly -  $2.31 - $96.15

Bi-Weekly -  $4.62 - $192.30

21-Pay  - $5.71 - $238.09

There are a few exceptions for the Dependent Care FSA:

􀁹 If you are married and have a working spouse, the amount you put into this account cannot exceed the lower of your two earned

incomes. For example, if your spouse works part-time and earns $4,000 a year, you can only put up to $4,000 in your Dependent

Care FSA.

􀁹 If you are married and filing separate returns, the amount each of you can contribute to an employer-sponsored Dependent Care

FSA is $2,000.

􀁹 If your spouse is also eligible to participate in a Dependent Care FSA, either with the City of Baltimore or another employer, the

combined amount you both contribute cannot exceed $5,000.

Limits to Mid-Year Changes

Once you designate an amount for the Dependent Care FSA, you cannot change it until the next Open Enrollment Period unless there

is a qualifying change in family status. A qualifying change in status is an event such as the birth of a child, the loss of a dependent,

marriage, divorce, or the termination of your spouse’s employment. You have 60 days from the occurrence of the qualifying event to

make changes to your benefits. Your request must be “on account of and consistent with” the change in status which occurred.

Because the amount you set aside in the Dependent Care Flexible Spending Account is not designated for a specific person in your

household or a specific expense, a change in one dependent’s status does not necessarily justify changes to an FSA enrollment

Therefore, the circumstances under which midyear changes to the Dependent Care Flexible Spending Account are permitted

are very limited. Contact the Employee Benefits Division to determine if your situation enables you to make a change to your

FSA.

Eligible changes to your Dependent Care FSA deposits must be made within 60 days of the qualifying event. To make a change log

onto the City of Baltimore’s enrollment website www.baltimorecity.essbenefits.com (you will need your Social Security number and your

four-digit PIN to log onto the website).

When does the Dependent Care FSA Close?

The Dependent Care FSA is open for no more than one calendar year. At the end of each year, the account closes. You will forfeit any

money left in your account - unless you have incurred eligible expenses by year-end and file for reimbursement no later than April 15th of

the following year.

You cannot close your account before the end of the year unless you terminate your employment with the City. If you terminate your

employment with the City, your last deposit to the FSA determines the end date of your coverage period.

For example, if your last deduction is taken for the pay period ending August 1, your coverage period ends August 15, and you may

submit claims for expenses incurred between January 1 and August 15. You will have until April 15 of the next year to file for

reimbursement from your FSA, but the expenses must have been incurred within your shortened coverage period.

Reimbursement Procedures

1. Collect your receipts for any eligible expenses.

2. Fill out a reimbursement request form. You can include up to 10 difference expenses on the same form.

3. Make copies of your bills and send the original reimbursement form and copies of the bills to the Employee Benefits Division at

the address listed on the top of the reimbursement form. You should keep the yellow copy of the reimbursement form and the

original bills for your records.

Any money deducted from your pay for a Dependent Care FSA starts accumulating in your account immediately. At the time you

receive an eligible service you must pay the associated charge. Then, you can take money out of your account to pay yourself back for

eligible expenses at any time during the plan year you are covered.

You may obtain a claim form from your agency Personnel Officer. Complete the “reimbursement request” form and send it in with

receipts that show how much you paid.

Under the Dependent Care FSA, you will receive the full amount requested, up to the amount already deposited in your account, if the

amount requested exceeds current deposits, you will continue to receive reimbursements as the funds are deposited to your Dependent

Care FSA.

You can submit requests for reimbursement until April 15th of the following year, as long as the receipts show that you received the

service during the same year and at the same time the deductions were taken.

Necessary receipts

You must submit acceptable receipts with your request for reimbursement, the receipts must provides the following information:

􀁹 Name of the person or organization that provided the care and their Tax I.D. # or Social Security Number

􀁹 Who received the care - spouse, dependent?

􀁹 Exact dates when you or your dependents received the care - not the date the bill was prepared or paid

􀁹 How much you paid for the service

Important: Canceled checks are not receipts and not valid verification by themselves. You must have something in writing

that shows the required information listed above. A copy of a canceled check may be used in conjunction with a bill, which

shows all of the required information.

Once the Employee Benefits Division receives your reimbursement request, the following will happen:

1. Your reimbursement request will be reviewed to make sure the form is filled out properly and that acceptable receipts are

enclosed. If anything is missing, the form will be returned to you with an explanation of what is needed. Note: bills showing

“balance due” and any bills that are not marked “paid” are unacceptable.

2. The reimbursement system will verify your total anticipated annual contribution to your FSA.

3. In general, your reimbursement, once received by Employee Benefits, will be processed at the end of each month. You should

receive your reimbursements on approximately the 15th of the following month to the address indicated on the City’s payroll file.

Contact the Employee Benefits Division at 410-396-5830 immediately if reimbursement is not received in a timely manner.

REMINDER: Your Flexible Spending Account will be closed on December 31 and your current deductions will cease. If you want to

continue your Dependent Care Spending Account for the next year, you must re-enroll. To re-enroll please log-on to the employee

benefits enrollment website www.baltimorecity.essbenefits.com, during your open enrollment period. You must file for reimbursement

from your Dependent Care Spending Account by April 15th of the next year.

UNUSED MONEY IS LOST

The IRS requires that you forfeit any money left in your Spending Account once you have been reimbursed for all eligible expenses you

incurred in that year. Any unused money in your FSA cannot be returned to you or carried forward into the next year. Any money left in

your account will be forfeited.

It is very important to estimate your eligible expenses for the year conservatively and plan your contributions carefully, so you will not

have to forfeit any money. It is a good idea to put in a little less money than you think you are going to use, just to be on the safe side,

because once you designate an amount for your Dependent Care Flexible Spending Account that designation is binding for the

calendar year.

 WORKSHEET FOR ESTIMATING YOUR DEPENDENT CARE EXPENSES

Use this worksheet to add up the eligible dependent care expenses you expect to have in the

coming year. You may want to put in a smaller amount so there is less chance you will have to forfeit any

money at the end of the year.

􀁹 Day care expenses for children $ _____________

􀁹 Day care expenses for disabled dependent adults $ _____________

􀁹 Cost of a housekeeper who provides care for a dependent $ _____________

􀁹 School tuition expenses for care before and/or after school $ _____________

􀁹 Day camp expenses $ _____________

SUBTOTAL $ _____________

Optional:

Reduce the subtotal slightly to help avoid forfeiting money at year-end $ _____________

FINAL TOTAL $ _____________

Divide the final total by 26-pay periods if you are paid bi-weekly or

21-day periods if you are a 10-month employee. $ _____________

 REV. 03/25/07