Q.- An employee told us that her husband is contributing to a dependent care flexible spending account plan at his employer. Do we have to limit our employee’s contribution?
A.- An employee's contributions to a dependent care FSA always have to be limited. The maximum exclusion for married individuals filing a joint tax return (or for a single individual) is $5,000. The maximum exclusion for married individuals filing separate tax returns is $2,500. These limits are further reduced to the lesser of the employee's earned income for the year or if married, the spouse's earned income.
If the employer knows the employee is married and the spouse is contributing to a dependent care FSA of his own employer, the employer may wish to warn the spouse that she should limit her contribution to the above amounts and any reimbursement above the permissible exclusion will be taxed as income.