What is a highly compensated employee dependent care FSA 2025?
Asked by: Tyson Batz | Last update: August 30, 2025Score: 4.9/5 (42 votes)
What is considered a highly compensated employee for 2025?
The IRS defines a highly compensated employee according to the following criteria: Officers making over $160,000 in 2025 (up from $155,000 for 2024) Owners holding more than 5% of the stock or capital. Owners earning over $155,000 in 2024, not adjusted for inflation, (up from $150,000 in 2023) and holding more than 1%
Who is an HCE for dependent care FSA?
Special Limits for Highly Compensated Faculty and Staff
If you are an HCE, your Dependent Care FSA deduction may not exceed $3,600 per family for a married couple filing jointly, or for a single parent. For an HCE married person filing separately, the limit is $2,500.
What is the dependent care limit for FSA 2025?
Annual contribution limits: In 2025, you can contribute up to $5,000 per year (or $2,500 if married and filing taxes separately). For families with significant child care costs, contributing to a dependent care FSA allows you to stretch your budget further.
Is there a salary cap for dependent care in FSA?
Although the maximum limit is $5,000 at this time, your maximum yearly contribution amount cannot exceed the earned income limit. If you are single, the earned income limit is your salary (excluding your contributions to the dependent care FSA plan).
What HR Needs to Know About Dependent Care FSAs
What is the downside to dependent care FSA?
Drawbacks of Dependent Care FSA
If money is left over at the end of the year, it doesn't carry over to the next year. If your employer doesn't offer this account, there is no other way to get one. Your FSA can only pay for qualifying expenses, while you're working.
What happens if you contribute more than $5000 to dependent care FSA?
When you prepare your federal taxes during the next calendar year, you need to complete IRS Form 2441, "Child and Dependent Care Expenses" (attached to Form 1040) (PDF), and add the amount in excess of $5,000 back into your income.
How does dependent care FSA work?
With a Dependent Care FSA, you use pre-tax dollars to pay qualified out-of-pocket dependent care expenses. The money you contribute to a Dependent Care FSA is not subject to payroll taxes, so you end up paying less in taxes and taking home more of your paycheck.
What is the income limit for healthcare in 2025?
Premium tax credits are available to people who buy Marketplace coverage and whose income is at least as high as the federal poverty level. For an individual, that means an income of at least $15,060 in 2025. For a family of four, that means an income of at least $31,200 in 2025.
Is an HSA or FSA better?
Bottom line: Both HSAs and FSAs provide financial benefits for managing health care expenses. HSAs offer more flexibility and long-term growth potential, making them a valuable tool for future financial planning. Learn about HSA options from Aetna.
What is a highly compensated employee?
According to the IRS, a highly compensated employee is someone who either owned more than 5% of the interest in the business at any time during the year or the preceding year (regardless of how much compensation that person earned or received) or, received more than $155,000 in compensation in the previous year if that ...
Is dependent care FSA reported to IRS?
You're receiving a tax benefit because under the plan, you're not paying taxes on the money set aside to pay for the dependent care expenses. You must complete and attach Form 2441, Child and Dependent Care Expenses to your tax return.
What is the HCE for FSA testing?
Dependent Day Care FSA
A highly compensated employee for DFSA testing is a more than 5% owner of the company during the current or preceding year, or an individual with compensation during the preceding year over the IRS dollar limit.
What is the 20% rule for highly compensated employees?
For many companies, it means that if your income exceeds the threshold for a given year, you're considered an HCE. For other companies, you may be considered an HCE only if you earn over the income limit and you're within the top 20% of all individuals at your company when they are ranked by compensation.
What is the special rule for highly compensated employees?
The employee must earn a total annual compensation of at least $107,432, which must include at least $684 a week paid on a salary or fee basis. Total annual compensation: may also include commissions, nondiscretionary bonuses, and other nondiscretionary compensation earned during a 52-week period; and.
What is the 2025 FPL?
For coverage effective in 2025, 250% of the federal poverty level in the continental U.S. is $37,650 for a single individual, $64,550 for a family of three, and $104,900 for a family of six. (The amounts are higher in Alaska and Hawaii, since they have higher federal poverty levels).
How can I avoid paying back my premium tax credit?
Report any changes in your income during the year to the Marketplace, so your credit can be adjusted and you can avoid any significant repayments at the end of the year.
Is FPL based on gross or net income?
Your total (or “gross”) income for the tax year, minus certain adjustments you're allowed to take. Adjustments include deductions for conventional IRA contributions, student loan interest, and more.
What are the drawbacks of dependent care FSA?
Potential drawbacks of a Dependent Care FSA
The funds you contribute don't roll over from plan year to year. If you and your partner's child care plans change, then you may be out that money. Not all employers offer Dependent Care FSA employee assistance program options.
Is there a salary limit for dependent care FSA?
The IRS defines employees who earned $155,000 or more in 2024 as “highly compensated,” and limits their 2025 DepCare FSA contributions to $2,500. The Dependent Care FSA is a use-it-or-lose-it plan, with a grace period for using the funds in your account.
What is the dependent care FSA limit for 2025 highly compensated employees?
If you are married and file separate tax returns the most you can contribute is $2,500. If your annual compensation is equal to or more than $155,000 your maximum contribution will be $2,250 for 2025.
Can I pay a babysitter with dependent care FSA?
Yes, your dependent care FSA can reimburse you for expenses paid to a babysitter under the age of 19 as long as the babysitter is not you or your spouse's child, stepchild, foster child, or tax dependent.
Do I need to report dependent care FSA on taxes?
Yes, unlike healthcare and limited health FSAs, you must file a form with your tax return when you have a DCFSA.
Can both parents contribute 5000 to dependent care FSA?
Can I still contribute the full $5,000 to the DCFSA even if my spouse is contributing to a DCFSA as well? No. Per IRS rules, the total that each family can elect for a Dependent Care FSA (DCFSA) must not exceed $5,000 per household ($2,500 each if married and filing separately).