Contributions
You may contribute to the dependent care spending account if you have eligible dependent care expenses (that is, you incur expenses to enable you to work).  If you are married, you may contribute to this account only if your spouse is:

• gainfully employed outside the home
• actively searching for a job
• enrolled as a full-time student at least five months of the year
  or
• mentally or physically disabled, and unable to provide care for himself or herself.

If your spouse’s employment ends during the year, you should contact your company’s benefit office immediately because you may no longer be eligible to participate in this account.

You can contribute from $100 to $5,000 annually in before-tax dollars to your dependent care spending account.  In some cases, however, the Internal Revenue Service limits the amount you can contribute, as shown in the following chart.  Dependent care contributions are reported on your W-2, according to Internal Revenue Service rules.

Limit for Highly Compensated Employees
Certain highly compensated employees may be limited by the Internal Revenue Service as to how much they can contribute to the dependent care spending account each year.  You will be notified if this limit applies to you.

Special Dependent Care Spending Account Limits if You are Married
If this is your Situation …	You will be taxed on reimbursements that exceed …
You or your spouse earn less than $5,000	The amount the lower- paid spouse earns*
Your spouse also participates in a similar dependent care spending account	$5,000 combined
You file separate federal income tax returns	$2,500
* If your spouse is a full-time student for at least five months of the year or is disabled, he or she will be treated as earning $250 a month if you have one Eligible Dependent ($500 a month if you have two or more Eligible Dependents), adjusted for future years as required by the IRS.

Eligible Dependents
You may use the dependent care spending account to pay for the care of your Eligible Dependents so that you or, if you are married, you and your spouse, can work.  Eligible Dependents include:

• your children under age 13
• your spouse, if he or she is physically or mentally incapable of caring for himself or herself and has the same principal place of abode as you for more than one-half of the year

or

• a disabled dependent of any age (including parents) if he or she is physically or mentally incapable of caring for himself or herself and has the same principal place of abode as you for more than one-half of the year.

An Eligible Dependent is someone you can claim as a dependent on your federal income tax return.

If you are divorced or legally separated and have custody of your eligible child, you may use the dependent care spending account even though you have agreed to let your spouse claim the child as a dependent for tax purposes.  If you have joint custody, you may also use the dependent care spending account provided you have custody of your child for a longer period during the year than your spouse.

Eligible Expenses
Expenses eligible for reimbursement are those incurred to enable you to work and include:

• services provided in your home by a babysitter or companion, including wages and related taxes
• services provided by a dependent care center that meets local regulations, cares for more than six nonresidents and receives a fee for such services, whether or not for profit
• services provided outside your home, such as day camp, preschool tuition or other outside dependent/child care services, such as before and after-school programs, but only if the care is for a dependent under age 13 or other Eligible Dependent who regularly spends at least 8 hours a day in your home.

Generally, eligible child care costs include only those for the actual care of your child, not costs for education, supplies or meals – unless those costs cannot be separated.

Expenses Not Eligible
Expenses that are not eligible for reimbursement through the dependent care spending account include:

• dependent care provided by your child (or stepchild) who is under age 19 at the end of the taxable year or by another dependent whom you can claim as an exemption
• dependent care obtained for non-work-related reasons such as babysitting after your working hours
• dependent care provided while you are away from work because of illness or leave of absence
• dependent care that could be provided by your employed spouse whose work hours differ from yours
• expenses for overnight camp
• dependent care expenses incurred if your spouse does not work, unless your spouse is actively seeking employment, a full-time student, or disabled
• any expenses you claim for the dependent care tax credit on your federal income tax return
• expenses paid by another organization or provided without cost
• transportation to or from the dependent care location
• care provided in a group care center that does not meet state and local laws
• agency finder fees
• charges for referral to dependent care providers
• costs for after-school educational programs
• costs for clothing, entertainment, or food
• educational expenses (such as those for private school) for kindergarten or higher
• expenses incurred before you began contributing to the account or after you stop contributing.

Dependent Care Spending Account vs. the Federal Tax Credit
Under the current tax law, you can save taxes on dependent care expenses by either claiming a tax credit on your federal income tax return or by participating in the dependent care spending account. Both are intended to offer you tax savings.  The best method for you depends on your income, the number of Eligible Dependents you have, and other factors.  However, for most people, using the dependent care spending account provides a greater tax advantage.

You may use both approaches, but you may not “double deduct” the same expense.  In addition, the expenses you apply toward the tax credit will be reduced dollar-for-dollar by the amount of expenses reimbursed from your account.  This means:

• If you have one Eligible Dependent, your total expenses eligible for the tax credit are $3,000 in 2005 (or your actual expenses, if less) minus any amount received through the dependent care spending account.
• If you have two or more Eligible Dependents, your total expenses eligible for the tax credit are $6,000 in 2005 (or your actual expenses, if less) minus any amount received through the dependent care spending account.

These amounts are subject to change annually.

You should consult a personal financial or tax advisor to help you decide whether the tax credit or the dependent care spending account is more favorable for you.

Refer to Internal Revenue Service Publication 503 for a discussion of the tax credit. To order a copy, call the Internal Revenue Service toll-free at 1-800-829-3676 or visit the IRS website at www.irs.gov.

Filing Claims
When you have an eligible dependent care expense, you must pay the provider and then submit a flexible spending account reimbursement request form, along with a bill or receipt, to the claims administrator, at the address on the bottom of the form.  Be sure to include the dependent care provider’s Social Security or tax identification number on the form. The annual deadline for filing prior year claims is March 31.

Dependent Care Provider Identification When you file a claim for reimbursement through the dependent care spending account, you must include an original receipt from your dependent care provider.  You will have to provide the caregiver’s name, address and taxpayer identification number (or Social Security number) on Internal Revenue Service Form 2441 when you file your federal income tax return and when you submit a claim for reimbursement.  If you cannot supply this information, you should not use the dependent care spending account. To obtain IRS Form 2441, call the Internal Revenue Service at 1-800-829-3676 or visit the IRS website at www.irs.gov.

You will be reimbursed only for dependent care services you have already received. For example, if you pay in advance for three months of care, you cannot be reimbursed for the entire amount until after the end of the three-month period. However, you can be reimbursed for a portion of the bill at a time.

You will be reimbursed for the lesser of your current account balance or the amount of the claim.  If you submit a claim for an amount that exceeds your account balance, you will be reimbursed for the remainder of the claim after you have made sufficient additional contributions for that year to cover the expenses.

Payment of eligible expenses incurred, received, and processed will be made weekly.
Flexible spending account reimbursement request forms are available on your company’s website.

No Transfers Allowed Remember, you may not transfer money between flexible spending accounts.  Money set aside in your health care spending account cannot be used to reimburse dependent care expenses and vice versa.

Estimate your flexible spending account contributions carefully.  You may continue to file claims for expenses incurred during the plan year until March 31st of the following year.  According to Internal Revenue Service rules, you must “use up” amounts deducted from your pay by incurring and filing claims for eligible expenses up to the amount you have had deducted.  Otherwise, you lose the money you have left in your account. 

Any forfeited amounts will be used to offset the plan’s administrative expenses.