Can Both Spouses Contribute to a Dependent Care FSA?
Understand how both spouses can contribute to a Dependent Care FSA, including eligibility, contribution limits, tax implications, and reimbursement coordination.
A Dependent Care Flexible Spending Account (FSA) is a tax-advantaged benefit that helps families save on childcare and dependent care expenses. Many couples wonder if both spouses can contribute to one, especially when managing costs for daycare, after-school programs, or elder care. Understanding the rules around contributions is important to avoid exceeding limits or facing tax complications.
Qualifying Status for Participation
To contribute to a Dependent Care FSA, both spouses must meet IRS eligibility criteria. These accounts are only available through employer-sponsored benefits, meaning each spouse must have access through their respective jobs. If only one spouse’s employer offers a Dependent Care FSA, the other cannot open a separate account independently.
Both spouses must be working, actively seeking employment, or enrolled as full-time students. If one spouse is unemployed and not looking for work, contributions are not allowed. For full-time students, the IRS assigns a deemed monthly income of $250 for one dependent or $500 for two or more, which affects contribution limits.
Self-employed individuals generally cannot participate unless they are classified as employees of their own business and receive benefits through a formal employer-sponsored plan. Sole proprietors, partners, and LLC members taxed as a partnership are ineligible unless their spouse has access to an employer-sponsored plan.
Income Requirements
A couple’s total contribution to a Dependent Care FSA cannot exceed the lower-earning spouse’s income. If one spouse earns $60,000 annually and the other earns $4,000, the household’s total contribution is capped at $4,000, even if the IRS limit allows for more.
For married couples filing jointly, both must have earned income for contributions to be valid. Earned income includes wages, salaries, tips, and net earnings from self-employment. Passive income, such as rental earnings, investment dividends, or Social Security benefits, does not count. If one spouse has no earned income, the couple cannot contribute unless that spouse qualifies under IRS provisions, such as being a full-time student or disabled.
Self-employed individuals can contribute if they have earned income, but business losses can reduce or eliminate their ability to do so. If a self-employed spouse operates at a loss, their earned income is effectively zero, preventing any contributions.
Combined Household Contribution Limits
The IRS sets a maximum Dependent Care FSA contribution of $5,000 per household for those filing jointly and $2,500 per spouse if filing separately. If both spouses have FSAs through their employers, their combined contributions cannot exceed the household maximum. Employers do not coordinate this limit, so couples must track their contributions to avoid exceeding it.
If contributions surpass the IRS limit, the excess amount becomes taxable and must be reported on Form 2441. Overcontributions are subject to income tax and potential penalties. Since FSAs operate on a “use-it-or-lose-it” basis, any unspent funds at the end of the plan year are forfeited unless the employer offers a grace period or short carryover period.
Coordination for Reimbursements
Reimbursements from a Dependent Care FSA require proper documentation. Eligible expenses must enable both spouses to work or attend school full-time. Claims must include receipts with the provider’s name, address, taxpayer identification number (TIN) or Social Security number, date and type of service, and amount paid. Incomplete documentation can lead to denied claims.
If both spouses have separate FSAs, they must avoid duplicate claims. The IRS prohibits double-dipping, meaning the same expense cannot be reimbursed from both accounts. Couples should track spending carefully and allocate claims between accounts to ensure full utilization without exceeding available balances.
Tax Filing Considerations
A couple’s tax filing status affects Dependent Care FSA contributions and reimbursements. Those filing jointly can claim the full $5,000 household limit, while married couples filing separately are each capped at $2,500. If one spouse contributes more than $2,500 while filing separately, the excess becomes taxable income.
Form 2441, Child and Dependent Care Expenses, must be completed when filing taxes to report FSA contributions and verify that expenses meet IRS requirements. The form requires details on the care provider, including their taxpayer identification number or Social Security number, and the total amount paid. Failure to provide this information can result in the IRS disallowing the tax benefit, leading to additional tax liability.
Consequences for Incorrect Usage
Using a Dependent Care FSA for non-qualifying expenses results in taxable income and must be reported accordingly. If an audit reveals improper usage, the IRS may impose penalties, including interest on unpaid taxes. Employers also have compliance requirements and may deny reimbursement for ineligible expenses.
If a couple overcontributes due to lack of coordination between two FSAs, the excess amount is subject to income and payroll taxes. Unlike a Health Care FSA, where some plans allow a carryover of unused funds, Dependent Care FSAs follow a strict use-it-or-lose-it rule. Any unspent balance at the end of the plan year is forfeited unless the employer offers a grace period or short carryover option.