Dependent Care FSA

[Leesbro63]

My son in law asked me about doing a Dependent Care FSA for 2023. I believe it goes away for 2024. He and my daughter are married with a 4 year old and a 2 year old. Both in all day pre-school. They are high income. Is there any ability to funding this pre-tax for 2023 and maybe withdrawing $5000 (the preschool is way more than that) tax free? To be honest, I know nothing about this.

[deltaneutral83]

That's precisely the way it works. Ours is through employer who uses Navia, we submit the EIN of the facility, get's approved, then submit the invoices about quarterly (so, $1,250 worth) and HR processes payment a week later. It is also FICA free as well, not that that affects high earners. High income in CA could be 50% (Fed+State) of $5,000.

[CletusCaddy]

It is also FICA free as well, not that that affects high earners.

Medicare tax is 2.35% for high earners

[Leesbro63]

That's precisely the way it works. Ours is through employer who uses Navia, we submit the EIN of the facility, get's approved, then submit the invoices about quarterly (so, $1,250 worth) and HR processes payment a week later. It is also FICA free as well, not that that affects high earners. High income in CA could be 50% (Fed+State) of $5,000.

It appears this goes away for 2024. Is it doable for 2023 this late in the year? Can they get reimbursed for preschool costs paid earlier in the year? Must the FSA withdrawal check be to the school?

[CletusCaddy]

That's precisely the way it works. Ours is through employer who uses Navia, we submit the EIN of the facility, get's approved, then submit the invoices about quarterly (so, $1,250 worth) and HR processes payment a week later. It is also FICA free as well, not that that affects high earners. High income in CA could be 50% (Fed+State) of $5,000.

It appears this goes away for 2024. Is it doable for 2023 this late in the year? Can they get reimbursed for preschool costs paid earlier in the year? Must the FSA withdrawal check be to the school?

Dependent Care FSA goes away in 2024? That’s news to me

[toddthebod]

That's precisely the way it works. Ours is through employer who uses Navia, we submit the EIN of the facility, get's approved, then submit the invoices about quarterly (so, $1,250 worth) and HR processes payment a week later. It is also FICA free as well, not that that affects high earners. High income in CA could be 50% (Fed+State) of $5,000.

It appears this goes away for 2024. Is it doable for 2023 this late in the year? Can they get reimbursed for preschool costs paid earlier in the year? Must the FSA withdrawal check be to the school?

Goes away, like his workplace no longer offers it?

[prd]

The money is "use it or lose it". If you don't use it: poof.

The good news is that you have until March 31st of the following year to make the submissions. I max it out every year and then do it all at once in January.

[lakpr]

The money is "use it or lose it". If you don't use it: poof.

The good news is that you have until March 31st of the following year to make the submissions. I max it out every year and then do it all at once in January.

Just to expand on the bolded text; only the submission for reimbursement from the Dependent Care FSA account can be delayed until March 31st. The actual day care expense must be incurred in calendar year 2023. You cannot prepay a Jan-2024 daycare expense in Dec 2023 either; the reimbursement mechanism checks the "service dates".

[prd]

Yes, good clarification points. Also, as I re-read the OP it looks as if they are wanting to start contributions to it now, for this year 2023. I can't speak for all businesses, but our contributions can only be started or changed during benefits open enrollment periods.

[Leesbro63]

Yes, good clarification points. Also, as I re-read the OP it looks as if they are wanting to start contributions to it now, for this year 2023. I can't speak for all businesses, but our contributions can only be started or changed during benefits open enrollment periods.

I’m the original poster. Yes, I’m wondering if a $5000 contribution can be made now, before the end of 2023, and my adult daughter and son-in-law can get reimbursed $5000 for the more than $5000 spent on preschool in 2023. I don’t believe this has been answered, so far.

EDIT: It appears that I misread the info we received. The FSA for Dependent care does NOT disappear for 2024.

[MP123]

I’m the original poster. Yes, I’m wondering if a $5000 contribution can be made now, before the end of 2023, and my adult daughter and son-in-law can get reimbursed $5000 for the more than $5000 spent on preschool in 2023. I don’t believe this has been answered, so far.

Generally FSA plans can not be used retroactively (i.e. to reimburse for expenses before the plan was open). I believe this applies to all FSAs including Dependent Care.

[lakpr]

I’m the original poster. Yes, I’m wondering if a $5000 contribution can be made now, before the end of 2023, and my adult daughter and son-in-law can get reimbursed $5000 for the more than $5000 spent on preschool in 2023. I don’t believe this has been answered, so far.

Already answered by @MP123, one more confirmation that FSA funds cannot be used retroactively. This is true for both Dependent Care FSA as well as Health Care FSA. Speaking from experience...

See the check of "service dates" I alluded to in my previous post.

[toddthebod]

I’m the original poster. Yes, I’m wondering if a $5000 contribution can be made now, before the end of 2023, and my adult daughter and son-in-law can get reimbursed $5000 for the more than $5000 spent on preschool in 2023. I don’t believe this has been answered, so far.

Generally FSA plans can not be used retroactively (i.e. to reimburse for expenses before the plan was open). I believe this applies to all FSAs including Dependent Care.

That was my experience when I started my current job. I started in the fall, and I submitted summer camp expenses immediately just to get it over with, and they denied them. I had to wait to incur new expenses over the remainder of the year.

[LittleMaggieMae]

I’m the original poster. Yes, I’m wondering if a $5000 contribution can be made now, before the end of 2023, and my adult daughter and son-in-law can get reimbursed $5000 for the more than $5000 spent on preschool in 2023. I don’t believe this has been answered, so far.

EDIT: It appears that I misread the info we received. The FSA for Dependent care does NOT disappear for 2024.

Your daughter/son-in-law needs to contact their HR/Benefits person and ask if they can be set up to contribute to the DCA (Dependent Care Account) for 2023. They will then need to contribute the 5K to the account over the remaining regularly scheduled paychecks between now an the Dec 31st.
I'm not sure the Dependent Care Account can be funded from bonus or merit or other types of payments.

I'm not sure what rules are in effect - as in if you don't sign up during open enrollment or you don't have a "qualifying life event" during the year you can't change your enrollment in the plan. It might just be if the employer has some the process in place to make changes on the fly they will make the change.


If they already signed up for next years DCA (and FSA, etc..) they should read the fine print.

My employer's FSA (the regular one and the one that goes with the HDHP/HSA plan) allows "last years contributions" to be used up until 3/15/2024. The paper work for reimbursements to use the 2023 "money" is due by 3/31/2024. I will have $300 left in my HSA on December 31st. I took this into account when I determined how much to contribute to my FSA for 2024. I need to use the $300 from 2023 by 3/15/2024.

I'm not sure how my employers DCA works. I imagine it has the same generous rules.

[pizzy]

Yes, good clarification points. Also, as I re-read the OP it looks as if they are wanting to start contributions to it now, for this year 2023. I can't speak for all businesses, but our contributions can only be started or changed during benefits open enrollment periods.

I’m the original poster. Yes, I’m wondering if a $5000 contribution can be made now, before the end of 2023, and my adult daughter and son-in-law can get reimbursed $5000 for the more than $5000 spent on preschool in 2023. I don’t believe this has been answered, so far.

EDIT: It appears that I misread the info we received. The FSA for Dependent care does NOT disappear for 2024.

Open enrollment for 2023 would have been in 2022.

They are probably in open enrollment now for 2024.

[deltaneutral83]

It is also FICA free as well, not that that affects high earners.

Medicare tax is 2.35% for high earners

Good point, I was just thinking about SS. DCFSA for high earner in CA could hypothetically be a 53.25% savings of the $5k, incredible.

[jandres12]

I personally never found the dependent care FSA worthwhile, and it has too many restrictions. You can always file for the dependent care tax credit and it ends up a wash regarding tax favorability, without the restrictions and danger of use it or lose it. It might be helpful as a budgeting tool but I don't see the tax benefits.

[pizzy]

I personally never found the dependent care FSA worthwhile, and it has too many restrictions. You can always file for the dependent care tax credit and it ends up a wash regarding tax favorability, without the restrictions and danger of use it or lose it. It might be helpful as a budgeting tool but I don't see the tax benefits.

Doesn't the tax credit have income limitations?

I think anyone can do the dependent care FSA and save at marginal rate.

[jandres12]

I personally never found the dependent care FSA worthwhile, and it has too many restrictions. You can always file for the dependent care tax credit and it ends up a wash regarding tax favorability, without the restrictions and danger of use it or lose it. It might be helpful as a budgeting tool but I don't see the tax benefits.

Doesn't the tax credit have income limitations?

I think anyone can do the dependent care FSA and save at marginal rate.

You are correct. The dependent care tax credit phases out if your modified adjusted gross income is above $400,000 (married filing jointly) or $200,000 (all other filers), so it will depend on the circumstance whether it is worthwhile to contribute to the FSA or not.

[Leesbro63]

I personally never found the dependent care FSA worthwhile, and it has too many restrictions. You can always file for the dependent care tax credit and it ends up a wash regarding tax favorability, without the restrictions and danger of use it or lose it. It might be helpful as a budgeting tool but I don't see the tax benefits.

Doesn't the tax credit have income limitations?

I think anyone can do the dependent care FSA and save at marginal rate.

You are correct. The dependent care tax credit phases out if your modified adjusted gross income is above $400,000 (married filing jointly) or $200,000 (all other filers), so it will depend on the circumstance whether it is worthwhile to contribute to the FSA or not.

The last two posts have had me Googling and I'm confused. It appears that dependent care tax credit is for expenses beyond the dependent care FSA. Right (???)? And this is subject to a $400,000+ income phase out. Right (???) Or is the ability to safe in a dependent care FSA subject to the $400,000+ income phase out?

[MP123]

Or is the ability to safe in a dependent care FSA subject to the $400,000+ income phase out?

There is no statutory phaseout for DCFSA contributions. But the plans are subject to non-discrimination testing, so it's possible that highly compensated employees may not be able to contribute the full amount ($5000) if there is inadequate participation from non-HCEs.

[toddthebod]

I personally never found the dependent care FSA worthwhile, and it has too many restrictions. You can always file for the dependent care tax credit and it ends up a wash regarding tax favorability, without the restrictions and danger of use it or lose it. It might be helpful as a budgeting tool but I don't see the tax benefits.

Doesn't the tax credit have income limitations?

I think anyone can do the dependent care FSA and save at marginal rate.

You are correct. The dependent care tax credit phases out if your modified adjusted gross income is above $400,000 (married filing jointly) or $200,000 (all other filers), so it will depend on the circumstance whether it is worthwhile to contribute to the FSA or not.

The last two posts have had me Googling and I'm confused. It appears that dependent care tax credit is for expenses beyond the dependent care FSA. Right (???)? And this is subject to a $400,000+ income phase out. Right (???) Or is the ability to safe in a dependent care FSA subject to the $400,000+ income phase out?

The Dependent Care tax credit is worth 20% of up to $6,000 of expenses for most married couples, but you can't double-dip with the FSA.

If you are a married couple with a combined income of $160,000 maxing out your 401(k)s, the Dependent Care FSA actually costs you money.

If you make more than that, you have to decide if the extra $100 savings is worth the hassle of use-it-or-lose-it and submitting receipts.

[OrangeKiwi]

The Dependent Care tax credit is worth 20% of up to $6,000 of expenses for most married couples, but you can't double-dip with the FSA.

If you are a married couple with a combined income of $160,000 maxing out your 401(k)s, the Dependent Care FSA actually costs you money.

If you make more than that, you have to decide if the extra $100 savings is worth the hassle of use-it-or-lose-it and submitting receipts.

I do not understand how MFJ with income of $160k would lose money from a DCFSA. Suppose you are classified as an HCE, and your employer limits your DCFSA to $3k, then you would end up subtracting $3k from the dependent care expenses due to it being an excluded benefit (the calculation in Part III of the form). Then if you have 1 child, you would end up with $0 credit, but if you have 2 children, you would still have another 20% of $3,000 available = $600 credit available.

https://www.irs.gov/pub/irs-pdf/f2441.pdf

[Leesbro63]

I personally never found the dependent care FSA worthwhile, and it has too many restrictions. You can always file for the dependent care tax credit and it ends up a wash regarding tax favorability, without the restrictions and danger of use it or lose it. It might be helpful as a budgeting tool but I don't see the tax benefits.

Doesn't the tax credit have income limitations?

I think anyone can do the dependent care FSA and save at marginal rate.

You are correct. The dependent care tax credit phases out if your modified adjusted gross income is above $400,000 (married filing jointly) or $200,000 (all other filers), so it will depend on the circumstance whether it is worthwhile to contribute to the FSA or not.

The last two posts have had me Googling and I'm confused. It appears that dependent care tax credit is for expenses beyond the dependent care FSA. Right (???)? And this is subject to a $400,000+ income phase out. Right (???) Or is the ability to safe in a dependent care FSA subject to the $400,000+ income phase out?

The Dependent Care tax credit is worth 20% of up to $6,000 of expenses for most married couples, but you can't double-dip with the FSA.

If you are a married couple with a combined income of $160,000 maxing out your 401(k)s, the Dependent Care FSA actually costs you money.

If you make more than that, you have to decide if the extra $100 savings is worth the hassle of use-it-or-lose-it and submitting receipts.

So are you saying that preschool qualifies for the Dependent Care tax credit even if you don’t do an FSA?

[toddthebod]

The Dependent Care tax credit is worth 20% of up to $6,000 of expenses for most married couples, but you can't double-dip with the FSA.

If you are a married couple with a combined income of $160,000 maxing out your 401(k)s, the Dependent Care FSA actually costs you money.

If you make more than that, you have to decide if the extra $100 savings is worth the hassle of use-it-or-lose-it and submitting receipts.

I do not understand how MFJ with income of $160k would lose money from a DCFSA. Suppose you are classified as an HCE, and your employer limits your DCFSA to $3k, then you would end up subtracting $3k from the dependent care expenses due to it being an excluded benefit (the calculation in Part III of the form). Then if you have 1 child, you would end up with $0 credit, but if you have 2 children, you would still have another 20% of $3,000 available = $600 credit available.

https://www.irs.gov/pub/irs-pdf/f2441.pdf

Your marginal tax rate in the situation i outlined is 12%. A dollar put in a dependent care FSA saves you 12 cents in taxes. The credit is worth 20 cents on the dollar.

[toddthebod]

Doesn't the tax credit have income limitations?

I think anyone can do the dependent care FSA and save at marginal rate.

You are correct. The dependent care tax credit phases out if your modified adjusted gross income is above $400,000 (married filing jointly) or $200,000 (all other filers), so it will depend on the circumstance whether it is worthwhile to contribute to the FSA or not.

The last two posts have had me Googling and I'm confused. It appears that dependent care tax credit is for expenses beyond the dependent care FSA. Right (???)? And this is subject to a $400,000+ income phase out. Right (???) Or is the ability to safe in a dependent care FSA subject to the $400,000+ income phase out?

The Dependent Care tax credit is worth 20% of up to $6,000 of expenses for most married couples, but you can't double-dip with the FSA.

If you are a married couple with a combined income of $160,000 maxing out your 401(k)s, the Dependent Care FSA actually costs you money.

If you make more than that, you have to decide if the extra $100 savings is worth the hassle of use-it-or-lose-it and submitting receipts.

So are you saying that preschool qualifies for the Dependent Care tax credit even if you don’t do an FSA?

Yes. Preschool is dependent care.

[Leesbro63]

You are correct. The dependent care tax credit phases out if your modified adjusted gross income is above $400,000 (married filing jointly) or $200,000 (all other filers), so it will depend on the circumstance whether it is worthwhile to contribute to the FSA or not.

The last two posts have had me Googling and I'm confused. It appears that dependent care tax credit is for expenses beyond the dependent care FSA. Right (???)? And this is subject to a $400,000+ income phase out. Right (???) Or is the ability to safe in a dependent care FSA subject to the $400,000+ income phase out?

The Dependent Care tax credit is worth 20% of up to $6,000 of expenses for most married couples, but you can't double-dip with the FSA.

If you are a married couple with a combined income of $160,000 maxing out your 401(k)s, the Dependent Care FSA actually costs you money.

If you make more than that, you have to decide if the extra $100 savings is worth the hassle of use-it-or-lose-it and submitting receipts.

So are you saying that preschool qualifies for the Dependent Care tax credit even if you don’t do an FSA?

Yes. Preschool is dependent care.

Nice! Thanks!

[GoodOmens]

I’m the original poster. Yes, I’m wondering if a $5000 contribution can be made now, before the end of 2023, and my adult daughter and son-in-law can get reimbursed $5000 for the more than $5000 spent on preschool in 2023. I don’t believe this has been answered, so far.

Already answered by @MP123, one more confirmation that FSA funds cannot be used retroactively. This is true for both Dependent Care FSA as well as Health Care FSA. Speaking from experience...

See the check of "service dates" I alluded to in my previous post.

Not even retroactively within the same calendar year. We signed up for ours in Feb and they rejected Jan expenses for that specific reason.

[OrangeKiwi]

The Dependent Care tax credit is worth 20% of up to $6,000 of expenses for most married couples, but you can't double-dip with the FSA.

If you are a married couple with a combined income of $160,000 maxing out your 401(k)s, the Dependent Care FSA actually costs you money.

If you make more than that, you have to decide if the extra $100 savings is worth the hassle of use-it-or-lose-it and submitting receipts.

I do not understand how MFJ with income of $160k would lose money from a DCFSA. Suppose you are classified as an HCE, and your employer limits your DCFSA to $3k, then you would end up subtracting $3k from the dependent care expenses due to it being an excluded benefit (the calculation in Part III of the form). Then if you have 1 child, you would end up with $0 credit, but if you have 2 children, you would still have another 20% of $3,000 available = $600 credit available.

https://www.irs.gov/pub/irs-pdf/f2441.pdf

Your marginal tax rate in the situation i outlined is 12%. A dollar put in a dependent care FSA saves you 12 cents in taxes. The credit is worth 20 cents on the dollar.

Oh, duh! Thanks for clearing that up.

[chocapic]

The Dependent Care tax credit is worth 20% of up to $6,000 of expenses for most married couples, but you can't double-dip with the FSA.

If you are a married couple with a combined income of $160,000 maxing out your 401(k)s, the Dependent Care FSA actually costs you money.

If you make more than that, you have to decide if the extra $100 savings is worth the hassle of use-it-or-lose-it and submitting receipts.

This is basically shorthand for multiple children/dependents, correct?

[lakpr]

This is basically shorthand for multiple children/dependents, correct?

It has been years since I had the issue, my kids are now adults and the Dependent Care FSA or Dependent Care Tax Credit are applicable to children younger than 12 only.

My impression is that, if you incur child care expenses more than $12,000 -- in NJ full time daycare for children is at least $1,500 per month and that was 2010/2012 figures -- you can opt for FSA for the first $6,000 and Dependent Care Credit for the remainder of expenses. Make sure you have receipts!!

[toddthebod]

The Dependent Care tax credit is worth 20% of up to $6,000 of expenses for most married couples, but you can't double-dip with the FSA.

If you are a married couple with a combined income of $160,000 maxing out your 401(k)s, the Dependent Care FSA actually costs you money.

If you make more than that, you have to decide if the extra $100 savings is worth the hassle of use-it-or-lose-it and submitting receipts.

This is basically shorthand for multiple children/dependents, correct?

It was meant to refer to having up to $6,000 in expenses. But you are correct that you would be limited to $3,000 if you only had one dependent.

[toddthebod]

This is basically shorthand for multiple children/dependents, correct?

It has been years since I had the issue, my kids are now adults and the Dependent Care FSA or Dependent Care Tax Credit are applicable to children younger than 12 only.

My impression is that, if you incur child care expenses more than $12,000 -- in NJ full time daycare for children is at least $1,500 per month and that was 2010/2012 figures -- you can opt for FSA for the first $6,000 and Dependent Care Credit for the remainder of expenses. Make sure you have receipts!!

That is incorrect. Line 29 of Form 2441 has you subtract your Dependent Care FSA amount from the $3,000/$6,000 credit limit.

[lakpr]

This is basically shorthand for multiple children/dependents, correct?

It has been years since I had the issue, my kids are now adults and the Dependent Care FSA or Dependent Care Tax Credit are applicable to children younger than 12 only.

My impression is that, if you incur child care expenses more than $12,000 -- in NJ full time daycare for children is at least $1,500 per month and that was 2010/2012 figures -- you can opt for FSA for the first $6,000 and Dependent Care Credit for the remainder of expenses. Make sure you have receipts!!

That is incorrect. Line 29 of Form 2441 has you subtract your Dependent Care FSA amount from the $3,000/$6,000 credit limit.

You are most likely right. Back in 2012 I was in 28% tax bracket and opted for FSA and submitted receipts for reimbursement. Also answered questions by TaxCut software truthfully about the amount of daycare expenses incurred. Did not dig further into actual tax forms to find out whether I received the credit or not.