Can I Use My FSA for My Parents’ Care Expenses?
Learn how FSA rules apply to parental care expenses, including eligibility criteria, allowable costs, and reimbursement guidelines.
A Flexible Spending Account (FSA) helps manage healthcare and dependent care costs using pre-tax dollars. Many wonder if FSA funds can cover expenses for their parents, especially as caregiving responsibilities grow. Understanding the rules is crucial to avoid denied claims or tax consequences.
Dependent Care FSA Requirements
A Dependent Care Flexible Spending Account (DCFSA) allows individuals to set aside pre-tax income for care expenses related to dependents. Unlike a Healthcare FSA, which covers medical costs, a DCFSA is meant for care services that enable the account holder to work. The IRS has strict guidelines on who qualifies as a dependent and what expenses are eligible.
To qualify, the account holder must have earned income. If married, their spouse must also be employed, looking for work, or a full-time student. The IRS limits annual contributions to $5,000 for married couples filing jointly or $2,500 for those filing separately. Most employers do not allow rollovers, meaning unused funds are forfeited at the end of the year.
A qualifying dependent must be a child under 13 or an adult incapable of self-care who lives with the account holder for more than half the year. The care must be necessary for the account holder to work. Eligible providers include daycare centers, in-home caregivers, and certain adult day programs, but they must report payments as taxable income.
Determining Eligibility for Parents
For a parent’s care expenses to qualify, they must meet the IRS definition of a dependent. They must be physically or mentally incapable of self-care and live with the account holder for more than half the year. The IRS defines this as needing assistance with daily activities such as bathing, dressing, or eating. A doctor’s documentation may be required.
The account holder must provide more than half of the parent’s financial support, including housing, food, and medical expenses. If the parent has significant income from Social Security, pensions, or other sources, they may not qualify.
Only one person can claim a parent as a dependent for DCFSA purposes. If multiple siblings contribute to a parent’s care, they must decide who will use FSA benefits for reimbursement. The IRS allows a “Multiple Support Agreement” (Form 2120) in some cases, but this does not extend DCFSA eligibility to multiple contributors.
Allowable Care Expenses
DCFSA funds must be used for care that enables the account holder to work. Payments to professional caregivers, whether for in-home assistance or adult day care, generally qualify. The caregiver can be an independent provider or work for an agency, but they cannot be the account holder’s spouse or a dependent claimed on their tax return.
Adult day care services are a common use of DCFSA funds, as they provide supervision, social engagement, and assistance with daily activities while the account holder is at work. These facilities often offer structured programs, including cognitive exercises for individuals with dementia or mobility support for those with physical limitations. However, overnight care, such as nursing home expenses or live-in assistance, is not eligible.
Household services that include caregiving may also qualify. If a home aide is hired to assist with meal preparation, light housekeeping, and personal care, the portion of their wages related to the parent’s supervision and well-being may be reimbursed. It’s important to keep detailed records and separate care-related costs from general household maintenance, as non-care expenses do not qualify.
Filing for Reimbursement
Submitting a claim requires proper documentation. Most plan administrators require itemized receipts with the caregiver’s name, address, tax identification number or Social Security number, dates of service, and the total amount paid. Without this information, claims may be denied.
Employers set deadlines for submitting claims, often aligning with the end of a plan’s grace period. Some plans allow a short extension, known as a “run-out period,” for filing expenses from the previous year. Missing these deadlines results in forfeited funds.
Penalties for Improper Claims
Using DCFSA funds for ineligible expenses can lead to tax liabilities and penalties. Employers and plan administrators conduct audits, and discrepancies may require repayment or tax adjustments.
If an ineligible expense is reimbursed and later identified as improper, the amount must be reported as taxable income, increasing the account holder’s tax burden. If not corrected promptly, it may result in additional interest or penalties. Deliberate misrepresentation, such as falsifying caregiver information or claiming expenses for non-dependent individuals, can lead to fines or further IRS scrutiny. Keeping accurate records and following eligibility rules helps avoid these risks.