Adding Dependents for FSA Expenses

A Flexible Spending account is a great way to use pre-tax funds to pay for qualified medical expenses. One great thing about this is that you can use these funds to pay for not only your medical expenses, but others as well.

The IRS allows FSA funds to be used on other's qualified medical expenses whom qualify as the following:

• Spouse
• Children whom can be claimed on your federal income tax return
• Other dependents as defined by the IRS

Health FSA expenses can include medical expenses paid for a dependent. To include these expenses, the person must have been a dependent either at the time the medical services were provided or at the time the expense was paid. A person generally qualifies as a dependent for purposes of the medical expense deduction if either of the following requirements are met:

To be a §105(b) dependent, an individual must meet most, but not all, of the requirements to be a “qualifying child” or a “qualifying relative” under Code §152.

• A qualifying child is an individual who bears a specified relationship to the employee (relationship test) and meets certain age requirements (age test).
• A qualifying relative is an individual (a) who bears a specified relationship to the employee (relationship test) and who is not anyone's qualifying child.

Dependent for Medical Expenses Exception

A dependent is a dependent for medical expenses if you could have claimed them as a dependent of your tax return except that:

1. He or she received gross income of $4,150 or more.
2. He or she filed a joint return in the current year.
3. You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s tax return.
   
   

Who is a Qualifying Child?

1. Your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them.
2. Under age 19 at the end of the year or under age 24 at the end of the year and a full-time student; younger than you or your spouse; or any age and permanently and totally disabled.
3. Lived with you for more than half of the year.
4. Didn’t provide over half of his or her own support.
5. Didn’t file a joint return, other than to claim a refund.

Child of Divorced or Separated Parents

For medical expenses, a child of divorced or separated parents can be treated as a descendant of both parents. Each parent can include the medical expenses he or she pays for the child even if the other parent claims the child’s dependency exemption.

Child Under Age 27 

The ACA created a special exception for a “child”. The expenses of an employee’s child who is under the age of 27 as of the end of the taxable year will qualify for tax-free reimbursement from a health FSA, even if the child doesn’t qualify as the employee’s tax dependent. For this purpose, the “child” is an individual who is the employee’s son, daughter, stepson, or stepdaughter.

Who is a Qualifying Relative?

The relationship test requires the relative to be:

• A child of the employee or a descendant of such child
• A brother, sister, stepbrother, or stepsister of the employee or a descendant of any such relative
• A father or mother of the employee, or an ancestor of either the father or mother
• A stepfather or stepmother
• A brother or sister of the father or mother
• A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
• Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship didn’t violate local law
  
  

Child of Divorced or Separated Parents

For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. Each parent can include the medical expenses he or she pays for the child, even if the other parent claims the child’s dependency exemption, if:

1. The child is in the custody of one or both parents for more than half the year.
2. The child receives over half of his or her support during the year from his or her parents, and
3. The child’s parents:
• Are divorced or legally separated under a decree of divorce or separate maintenance,
• Are separated under a written separation agreement
• Live apart at all times during the last 6 months of the year

This does not apply if the child’s exemption is being claimed under a multiple support agreement.

Support Claimed Under Multiple Support Agreement

If you are considered to have provided more than half of a qualifying relative’s support under a multiple support agreement, you can include medical expenses you pay for that person. A multiple support agreement is used when two or more people provide more than half of a person’s support, but no one alone provides more than half. You can include the entire unreimbursed amount you paid for medical expenses.