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Dependent Care FSA When a Child Reaches Age 13

Question: What are the rules surrounding dependent care FSA expenses upon an employee’s child reaching age 13?

Short Answer: The employee will generally have eligible dependent care FSA expenses for the services provided prior to the day the child reaches age 13.

Dependent Care FSA: General Eligible Expense Rules

There are two main requirements for a care-related expense to be reimbursable under the dependent care FSA:

  • The expense must be “employment-related”; and
  • The expense must be for a “qualifying individual.

Expenses are “employment-related” if they enable the employee and spouse to be gainfully employed.

For more details on situations where the “employment-related” status of dependent care expenses is difficult to determine, see our prior posts:

The issue of a child reaching age 13 implicates the second main requirement, which is that the expense be for a “qualifying individual.”

Dependent Care FSA: Qualifying Individual Requirements

The employee’s employment-related dependent care expenses must be for a “qualifying individual” to be reimbursable under the dependent care FSA.

A qualifying individual is:

  • The employee’s dependent child who is under age 13 when the care is provided;
  • The employee’s spouse who is not physically or mentally able to care for himself or herself and lives with the employee for more than half the year; or
  • A tax dependent who is not physically or mentally able to care for himself or herself and lives with the employee for more than half the year.

Note that the third item also permits individuals to qualify if they would have been a tax dependent but for the fact that they received gross income in excess of the dependency limit ($4,300, indexed) for that year, filed a joint return, or the employee or spouse could be claimed as a dependent on someone else’s tax return.

Dependent Care FSA: Child Reaches Age 13

In most cases, the employee will have eligible dependent care expenses for the child only for the period of the year prior to the child reaching age 13.

The test for having qualifying expenses applies on a day-by-day basis.  Employees can therefore incur expenses that are eligible for reimbursement under the dependent care FSA through the day before the child’s 13thbirthday.

Employees who have dependent care expenses for a child in the month of the child’s 13 birthday can submit for reimbursement only for the portion of those expenses incurred prior to the child’s birthday.  Any dependent care expenses incurred on or after the day of the child’s 13 birthday are not eligible.

Additional Notes

  • Employees experience a permitted election change even to revoke the election to contribute to the dependent care FSA on a prospective basis upon the child reaching age 13.  For more details, see our ABD 2020 Section 125 Permitted Election Change Event Chart.
  • As always, amounts contributed prior to the election change cannot be refunded to the employee—even on a taxable basis.  Per the Section 125 use-it-or-lose-it rule, unused amounts at the end of the plan year (plus any associated grace period and/or run-out period) will forfeit to the plan.  See our prior post for more details: Missing the Dependent Care FSA Run-Out Period.
  • Whether a child qualifies for an employee who is divorced, separated, or living apart from the other parent is determined by whether the employee is the “custodial parent.”  For more details, see our prior post: Dependent Care FSA for Parents Who are Divorced, Separated, or Living Apart.

Exception to the General Rule: Disabled Children Post-Age 13

If a child is severely disabled to the point of being physically or mentally incapable of self-care, the employee may be able to continue incur reimbursable dependent care expenses for the child after reaching age 13.

An individual is considered physically or mentally incapable of self-care only if, as a result of a physical or mental defect, the individual is incapable of caring for his or her hygiene or nutritional needs, or requires the full-time attention of another person for the individual’s own safety or the safety of others.  The IRS summarizes this standard as “Persons who can’t dress, clean, or feed themselves because of physical or mental problems.”

The child must also have the same principal place of abode (i.e., residence) as the employee for more than half the year.

For more details on other common disability-related dependent care FSA issues, see our prior posts:

Determining Eligible Expenses

Ultimately, the determination as to whether the employee’s daycare expenses are eligible for reimbursement under the dependent care FSA is an individual income tax issue to be resolved by the employee.  Where in question, employees should consult a personal tax advisor for assistance in determining whether their expenses are eligible for dependent care FSA reimbursement.

The dependent care FSA’s third-party administrator will require the employee to certify that the expenses are eligible for reimbursement upon submitting a claim.  However, unless the administrator has reason to believe that an expense does not qualify for reimbursement, there will be no further inquiry made by the administrator.  The employee is responsible for verifying the eligible expenses on the individual tax return (IRS Forms 1040 and 2441), and if ever raised on audit of the individual tax return by the IRS.

For more details on all issues related to Section 125 cafeteria plans, see our ABD Office Hours Webinar: Section 125 Cafeteria Plans.

Regulations

IRC §21(b)(1):

(1) Qualifying individual.

The term “qualifying individual” means—

(A)  a dependent of the taxpayer (as defined in section 152(a)(1)) who has not attained age 13,

(B)  a dependent of the taxpayer (as defined in section 152 , determined without regard to subsections (b)(1), (b)(2) , and (d)(1)(B) ) who is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year, or

(C)  the spouse of the taxpayer, if the spouse is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year.

IRS Publication 503

https://www.irs.gov/pub/irs-pdf/p503.pdf

Who Is a Qualifying Person?

Your child and dependent care expenses must be for the care of one or more qualifying persons.

A qualifying person is:

  1. Your qualifying child who is your dependent and who was under age 13 when the care was provided (but see Child of divorced or separated parents or parents living apart, later);
  2. Your spouse who wasn’t physically or mentally able to care for himself or herself and lived with you for more than half the year; or
  3. A person who wasn’t physically or mentally able to care for himself or herself, lived with you for more than half the year, and either:
  4. Was your dependent, or
  5. Would have been your dependent except that:
  • He or she received gross income of $4,200 or more,
  • He or she filed a joint return, or
  • You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2019 return.

Physically or mentally not able to care for oneself. Persons who can’t dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves.

IRS Revenue Ruling 2003-72:

https://www.irs.gov/pub/irs-drop/rr-03-72.pdf

HOLDING

For purposes of each of the provisions identified in this revenue ruling, a child attains a given age on the anniversary of the date that the child was born. For example, a child born on January 1, 1987, attains the age of 17 on January 1, 2004.

Treas. Reg. §1.21-1(b)(4):

(4) Physical or mental incapacity. An individual is physically or mentally incapable of self-care if, as a result of a physical or mental defect, the individual is incapable of caring for the individual’s hygiene or nutritional needs, or requires full-time attention of another person for the individual’s own safety or the safety of others. The inability of an individual to engage in any substantial gainful activity or to perform the normal household functions of a homemaker or care for minor children by reason of a physical or mental condition does not of itself establish that the individual is physically or mentally incapable of self-care.

IRS Tax Topic 602:

https://www.irs.gov/taxtopics/tc602

Qualifying Individual

qualifying individual for the child and dependent care credit is:

  • Your dependent qualifying child who is under age 13 when the care is provided,
  • Your spouse who is physically or mentally incapable of self-care and lived with you for more than half of the year, or
  • An individual who is physically or mentally incapable of self-care, lived with you for more than half of the year, and either: (i) is your dependent; or (ii) could have been your dependent except that he or she has gross income that equals or exceeds the exemption amount, or files a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer’s 2017 return.

Physically or Mentally Not Able to Care for Oneself – An individual is physically or mentally incapable of self-care if, as a result of a physical or mental defect, the individual is incapable of caring for his or her hygiene or nutritional needs, or requires the full-time attention of another person for the individual’s own safety or the safety of others.


About the author

Brian Gilmore

Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law.


The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Newfront shall have no liability for the information provided. While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.

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