One of the biggest challenges facing families who are considering adoption is the cost. According to sources, parents can expect to spend at least $40,000 adopting one child. Luckily, resources like an Adoption Assistance FSA can help reduce expenses. If you’re not familiar with this account, look no further – here’s everything you need to know about this pre-tax benefit.
How the Adoption Assistance FSA Works
An Adoption Assistance FSA is a type of Flexible Spending Account that allows participants to set aside pre-tax money into a special designated account to pay for eligible expenses. Because you’re using pre-tax dollars, you save on your state and federal taxes. (Unlike other FSAs, FICA/ Social Security taxes still apply to this account.)
- Determine how much you want to contribute to the FSA. This is known as your annual election amount.
- Divide your annual election amount by the number of your pay periods in a year. That amount will be deducted -pre-tax- from your paycheck every pay period.
- When you incur an eligible expense, submit a claim to P&A Group for reimbursement.
The IRS adjusts the maximum contribution amount annually. For 2019, the maximum election amount you can make is $14,080. This is a total rather than an annual amount, even if the expenses occur over a period of years.
Adoption Assistance FSA Eligible Expenses
- Adoption fees
- Court costs
- Attorney fees
- Related travel expenses
- Surrogate parenting arrangement
- Adopting a step-child
- Expenses incurred in violation of state or federal law
Your adopted child must be younger than 18 years old or physically or mentally incapable of caring for himself/herself. Additionally, if you are adopting a child outside the U.S., you are only able to receive reimbursement for expenses incurred in the year the adoption is final. This is really important to consider. The adoption process is frequently lengthy, so it’s wise to know when to sign up for this account and how much you should contribute. If you enroll in the account too soon and you don’t incur any expenses for a year, you will not be able to receive reimbursement from the account.
If you are interested in enrolling in the Adoption Assistance FSA, please consult with your tax advisor or legal counsel first to determine when the best time to participate is. We also have an ERISA attorney on-staff who can help provide guidance. Please contact us with your inquiry.
Pro-Tip: check with your employer to see if this account is available in your benefits package. P&A Group offers four FSA types employees can participate in at no extra charge.