Can I use my Dependent Care FSA funds to pay grandparents for childcare?
Title: Can I use my Dependent Care FSA funds to pay grandparents for childcare? 1 I'm in a total bind and hoping someone can help clear up my confusion about Dependent Care FSA rules. We have extra money in our 2023 FSA account because literally every summer camp we tried to get our 4-year-old into had waitlists a mile long and we never got in. So frustrating! Now I'm worried about losing those funds if we don't use them. My parents and my husband's parents have been watching our daughter at their homes quite a bit to help us out with the childcare shortage. Would I be able to use my remaining FSA funds to pay them for the childcare they've provided? I've done some research and it looks like I don't have to pay FICA taxes in this situation, but I'm really confused about whether there are other tax implications or special forms needed. Do they need to report this as income? Do I need receipts? Is there anything special about paying family members versus a daycare center? Any help would be so appreciated! I have about $2,800 left that I'm trying to figure out what to do with before we lose it.
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Liam Fitzgerald
8 Yes, you can use your Dependent Care FSA to pay your parents and in-laws for watching your child! This is actually a common situation, especially with ongoing childcare challenges. The basic requirements are: 1) The care must enable you to work or look for work, 2) Your child must be under 13, and 3) The caregiver cannot be your spouse or a dependent on your tax return. Here's what you need to know: You'll need to get their Social Security numbers and have them fill out a simple receipt for the care provided (dates, times, amounts paid). They will need to report this as income on their taxes, and you'll need to give them a Form W-10 to complete. The care must have already happened - you can't prepay for future care with FSA funds. And make sure you're only claiming amounts actually paid - don't try to maximize your FSA by inflating the numbers.
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Liam Fitzgerald
•17 Thanks for the info! Do my parents need to create an official business or anything like that to accept payment? And will this affect their Social Security benefits if they're retired?
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Liam Fitzgerald
•8 Your parents don't need to create an official business - they can accept payment as individuals providing a service. They'll report the income on Schedule C as self-employment income. If your parents are receiving Social Security benefits, the additional income could potentially impact their benefits if they're under full retirement age and the additional income puts them over the annual earnings limit. If they're already at full retirement age, there's no limit on how much they can earn while receiving full benefits.
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Liam Fitzgerald
12 I was in a similar situation last year! I found https://taxr.ai super helpful when figuring out how to use my Dependent Care FSA for my mom who watches my twins. I uploaded my FSA plan documents and got really clear answers about what documentation I needed to keep. The most valuable part was learning that I needed to create a simple childcare contract with my mom to make everything official for tax purposes. The site explained exactly what needed to be included in the contract and gave me a template I could customize. Saved me hours of research!
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Liam Fitzgerald
•22 Does this work for other family members too? My sister watches my kids sometimes and I'm wondering if I can use my FSA for that.
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Liam Fitzgerald
•19 I'm a bit skeptical about using these online tools. How accurate is their advice compared to what an actual tax professional would tell you? I'm worried about getting audited if I mess this up.
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Liam Fitzgerald
•12 Yes, it absolutely works for other family members like your sister! As long as she's not your dependent and you're paying her for care while you work, you can use your FSA funds. The site explains all the eligible relationships and gives specific instructions for each situation. Regarding accuracy, I was skeptical too initially. What convinced me was that they show you the exact IRS regulations and publication references for every answer. I actually took their information to my accountant who confirmed everything was correct. Their advice is based directly on tax law, not just general advice, so it's equivalent to what a good tax professional would tell you.
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Liam Fitzgerald
19 Update on my experience with taxr.ai - I decided to try it after my initial skepticism and I'm really glad I did! I uploaded my FSA plan document and asked specifically about paying my mother-in-law for childcare. The tool pointed out something important I hadn't considered - my FSA administrator required additional documentation for payments to relatives that wasn't mentioned in their general guidelines. Saved me from having my claim denied! It also explained exactly how my mother-in-law needed to report the income on her taxes. Super helpful and definitely worth checking out if you're trying to navigate FSA rules for family caregivers.
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Liam Fitzgerald
14 If you're having trouble getting through to your FSA administrator for clarification (I know I did!), I used https://claimyr.com to get someone on the phone quickly. My FSA company was taking 2+ hours on hold and I kept giving up. Claimyr got me through to a human in about 10 minutes and I was able to verify exactly what documentation they needed for family member payments. You can see how it works here: https://youtu.be/_kiP6q8DX5c The FSA rep confirmed I could use the funds for my parents but warned me about the specific receipt requirements they need - which were way more detailed than what I would have submitted on my own!
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Liam Fitzgerald
•7 How does this service actually work? Do they just call and wait on hold for you? Seems too good to be true.
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Liam Fitzgerald
•19 This sounds like a total scam. How does some random service get you past hold times that everyone else has to deal with? I bet they just take your money and you still end up waiting.
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Liam Fitzgerald
•14 It's actually pretty straightforward - they use technology to navigate phone systems and wait on hold for you. When they reach a human representative, you get a call connecting you directly. I was skeptical too until I tried it. Regarding the scam concern, I understand the skepticism. I felt the same way! The key difference is they have systems that can manage multiple hold lines simultaneously and they know the best times to call. I paid nothing until they actually got someone on the line for me. It genuinely worked and saved me over an hour of hold music.
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Liam Fitzgerald
19 I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it as a last resort when my FSA administrator kept disconnecting me after 45+ minutes on hold. It worked exactly as promised - I got a call back when they reached a human, and I was able to get my questions answered about using FSA funds for family caregivers. The rep confirmed that my mother-in-law needs to provide a tax ID (her SSN) and sign receipts with specific information for the care provided. I would have missed the deadline trying to get through on my own. Sometimes it's worth admitting when you're wrong about something!
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Liam Fitzgerald
3 Just a heads up - I did this last year and it worked fine, but make sure your FSA plan specifically allows for payments to relatives. Some plans have specific exclusions or extra requirements. Mine required a signed statement that my mother-in-law wasn't my tax dependent. Also, if your parents are retired but collecting Social Security before full retirement age, this additional income could potentially reduce their benefits if they exceed the earnings limit. Worth checking if that applies to your situation.
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Liam Fitzgerald
•11 How do I find out if my plan has these specific exclusions? I tried reading through my benefits portal but it's so confusing.
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Liam Fitzgerald
•3 The best way to check your specific plan rules is to request the Summary Plan Description (SPD) from your HR department or benefits portal. That document will list all exclusions and special requirements. Some plans make this available online, but if not, your HR department is legally required to provide it upon request. Another option is to call your FSA administrator directly and ask specifically about paying relatives for childcare. Get their answer in writing if possible (email is fine) so you have documentation if there are questions later.
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Liam Fitzgerald
16 Quick question about timing - my FSA is calendar year (Jan-Dec) and has a grace period until March 15 to use the funds. So if I'm paying my parents for childcare they provided in December, can I submit that in February and still get reimbursed from last year's funds?
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Liam Fitzgerald
•20 Yes, you absolutely can! That's exactly what the grace period is for. As long as the actual care was provided during the plan year (2023 in your case), you can submit for reimbursement until the end of your grace period (March 15, 2024). Just make sure your receipts clearly show the dates of service were in 2023.
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Aria Park
Great information in this thread! I'm dealing with a similar FSA situation but with a twist - my parents live in a different state. Does anyone know if there are any special considerations for paying out-of-state relatives for childcare with FSA funds? I'm worried there might be additional tax complications since they'd be reporting income in a different state than where I'm claiming the FSA benefit. My mom has been flying in to watch my kids during school breaks and I'd love to use my leftover FSA funds to compensate her for the childcare (not travel expenses, I know those aren't covered). Has anyone dealt with cross-state family caregiver situations before?
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Malik Robinson
•I haven't dealt with this exact situation, but from what I understand, the state where your parents live shouldn't matter for FSA purposes since the IRS rules are federal. Your mom would just report the childcare income on her tax return in her state, and you'd claim the FSA benefit on yours. The key is still the same - make sure she's not your tax dependent, get her SSN, and document the actual childcare dates and amounts. You might want to double-check with your FSA administrator though, since some plans have quirky rules about documentation for unusual situations like this!
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Malik Johnson
Good news - the cross-state situation shouldn't create any additional complications for your FSA! The federal tax rules apply regardless of which state your parents live in. Your mom will simply report the childcare income on her tax return in her home state, and you'll use your FSA funds and claim the benefit on your return in your state. The IRS doesn't care about state boundaries for this purpose. Just make sure you have the same documentation you'd need for any family caregiver: her Social Security number, detailed receipts showing the dates and times of care provided, and confirmation that she's not claimed as your dependent. Since she's traveling to provide care at your location, that actually strengthens the case that this is legitimate childcare rather than just a family visit. The only thing to be extra careful about is clearly documenting that the payments are specifically for childcare services, not reimbursement for travel expenses (which aren't FSA eligible). Keep detailed records of the childcare hours/dates versus any travel costs you might cover separately.
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