Dependent Care FSA grace period

August 13, 2015 5:20 PM

Am I correctly interpreting the implications of a DCFSA "grace period"?

Our daughter will be born soon and begin daycare in January. My understanding is that we can contribute to a dependent care FSA in 2015, and then reimburse ourselves for daycare used between 1/1/16 and 3/15/16 (the DCFSA 2015 grace period) using the 2015 money. This would be in addition to the $5K we would contribute and eventually get reimbursed for in 2016.

I'm about 95% sure this is what the rules allow (see here), but the risk is considerable since FSA money is use-or-lose. Has anyone pulled off a similar scheme? Can I contribute an appropriate amount in the remaining pay periods of 2015, and apply it to the first ten weeks of daycare in 2016?

I am only interested in this specific question, and do not need general advice on using an FSA. I do not think it matters, but I am a federal employee. Thanks!

posted by deadweightloss to Work & Money (3 answers total)

That is what the grace period for FSA means, yes.

The other term that comes up is "run-out period" which the is additional time to have to submit claims but you can't incur expenses during the run out period.
posted by magnetsphere at 5:32 PM on August 13, 2015

Yes, that's right. You can use the money to pay for qualified dependent care expenses incurred in the first 2.5 months of the year. Note that the reimbursement must be for an eligible dependent care provider. I do communications for these products and we're very careful to include info on eligible providers -- no under the table deals, etc.
posted by MarkAnd at 6:50 PM on August 13, 2015

I think it does matter that you're a federal employee. I was going to suggest you confirm with your employer that their Dependent Care FSA plan recognizes the FSA grace period because, at least as of a year ago, it was not mandated that employers recognize the grace period and whether or not an employer offered a grace period as part of their plan was optional. I assume though since it's their rule, the federal gov't offers the grace period to their own employees.

Also, you might just want to make sure you're eligible to contribute to a Dependent Care FSA in 2015. There are other rules around participating in a Dependent Care FSA, which I believe may include both parents working or being a full-time student or looking for work (so no stay at home parents). So, it's an interesting question whether or not you could contribute to a plan in 2015 while one parent is stay-at-home, but only use the funds to pay for expenses in 2016 when both parents are working. Probably fine, but just something to consider if you want to be fully buttoned up/by the book.
posted by Jego at 8:46 AM on August 14, 2015 [1 favorite]