Clarity on FSA plan years vs. tax year

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Jags4186
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Joined: Wed Jun 18, 2014 7:12 pm

Clarity on FSA plan years vs. tax year

Post by Jags4186 »

My company's benefits plan years run July 1 - June 30. During 2022 open enrollment I elected to join the dependedent care FSA effective July 1, 2022. I had HR schedule a $384.61 deduction for 13 remaining 2022 pay periods to get to the $5000 maximum tax deduction for calendar year 2022. Now that we are in January, I instructed HR to reduce my contribution to $192.30 ($5000/26) so I could max out my dependent care FSA in 2023 over the course of the year. The FSA administrator is telling HR that I can no longer contribute to my FSA until July 1 because I already maxed out $5000 for the plan year. Is this accurate? Am I stuck now contributing $5000 over the back half 13 weeks for the remainder of my employment at this company?

On a related note, can I 2023 FSA funds on 2022 expenses, or only on expenses incurred during the plan year? I.E. if I had $500 FSA contributions in January 2023, could I apply that towards December 2022 daycare expenses?
Topic Author
Jags4186
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Joined: Wed Jun 18, 2014 7:12 pm

Re: Clarity on FSA plan years vs. tax year

Post by Jags4186 »

bumping this for visibility.
fabdog
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Location: Williamsburg VA

Re: Clarity on FSA plan years vs. tax year

Post by fabdog »

A quick google search says plan year does not have to be calendar year

https://fsastore.com/learn-does-an-fsa- ... -year.html

that said... they also have to abide by the calendar year IRS limits... so your plan limits you to $5000 in a plan year... but you won't be able to put in more than $5K in a calendar year either...

Mike
aristotelian
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Re: Clarity on FSA plan years vs. tax year

Post by aristotelian »

Sounds right to me. Are you saying you are planning to leave this company?

I would be extremely careful about DC-FSA amounts. The last thing you want is to end up with funds left over in a use it or lose it account. Also not sure how maxing out a DC-FSA for Jul 23-Jun 24 at one employer might play with maxing for the calendar year at your future employer. I believe that is no bueno. Safest thing to do is to stop contributing at the current employer after the current plan expires. Unless you are already maxing the child care tax credit, they provide virtually the same benefit.

You sometimes have a carryover amount that you can use on the prior year expenses. That would be up to your plan documents if allowed.
Topic Author
Jags4186
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Joined: Wed Jun 18, 2014 7:12 pm

Re: Clarity on FSA plan years vs. tax year

Post by Jags4186 »

aristotelian wrote: Tue Jan 17, 2023 3:06 pm Sounds right to me. Are you saying you are planning to leave this company?

I would be extremely careful about DC-FSA amounts. The last thing you want is to end up with funds left over in a use it or lose it account. Also not sure how maxing out a DC-FSA for Jul 23-Jun 24 at one employer might play with maxing for the calendar year at your future employer. I believe that is no bueno. Safest thing to do is to stop contributing at the current employer after the current plan expires. Unless you are already maxing the child care tax credit, they provide virtually the same benefit.

You sometimes have a carryover amount that you can use on the prior year expenses. That would be up to your plan documents if allowed.
To clarify:

I signed up for the DC-FSA in July 2022 during open enrollment. I had $5000 deducted over 13 paychecks between July 1 and December 31 in order to get the full deduction in 2022. All of the $5000 deposited was immediately withdrawn to pay for day care expenses. $5000 is roughly 3 months worth of day care so no issue using the money within the calendar year. The plan was to get the full $5000 deduction in calendar 2022, even though I only opened the DC-FSA in July 2022.

Beginning January 2023, I had HR recalculate my DC-FSA contribution to $5000/26 paychecks. On my first paycheck for 2023, the money was withheld, but not deposited. I called the FSA provider and they said I had already maxed out my contribution for the plan year and will be unable to contribute again until July 2023. I don't think this is accurate, but you can't fight city hall. I will have to figure out how to get this withheld money back from HR. I suppose to get the full $5000 deduction in 2023, I will have to contribute $5000 again over 13 pay periods between July 2023 and December 2023, or just give up $2500 worth of DC-FSA this year and get on a normal $5000/26 schedule.

I only have 1 child so the child care tax credit is only worth $3000 vs. a $5000 DC-FSA. I am not super well versed on this, but it seems the DC-FSA is better if you have only 1 child.
aristotelian
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Re: Clarity on FSA plan years vs. tax year

Post by aristotelian »

Jags4186 wrote: Tue Jan 17, 2023 3:18 pm
aristotelian wrote: Tue Jan 17, 2023 3:06 pm Sounds right to me. Are you saying you are planning to leave this company?

I would be extremely careful about DC-FSA amounts. The last thing you want is to end up with funds left over in a use it or lose it account. Also not sure how maxing out a DC-FSA for Jul 23-Jun 24 at one employer might play with maxing for the calendar year at your future employer. I believe that is no bueno. Safest thing to do is to stop contributing at the current employer after the current plan expires. Unless you are already maxing the child care tax credit, they provide virtually the same benefit.

You sometimes have a carryover amount that you can use on the prior year expenses. That would be up to your plan documents if allowed.
To clarify:

I signed up for the DC-FSA in July 2022 during open enrollment. I had $5000 deducted over 13 paychecks between July 1 and December 31 in order to get the full deduction in 2022. All of the $5000 deposited was immediately withdrawn to pay for day care expenses. $5000 is roughly 3 months worth of day care so no issue using the money within the calendar year. The plan was to get the full $5000 deduction in calendar 2022, even though I only opened the DC-FSA in July 2022.

Beginning January 2023, I had HR recalculate my DC-FSA contribution to $5000/26 paychecks. On my first paycheck for 2023, the money was withheld, but not deposited. I called the FSA provider and they said I had already maxed out my contribution for the plan year and will be unable to contribute again until July 2023. I don't think this is accurate, but you can't fight city hall. I will have to figure out how to get this withheld money back from HR. I suppose to get the full $5000 deduction in 2023, I will have to contribute $5000 again over 13 pay periods between July 2023 and December 2023, or just give up $2500 worth of DC-FSA this year and get on a normal $5000/26 schedule.

I only have 1 child so the child care tax credit is only worth $3000 vs. a $5000 DC-FSA. I am not super well versed on this, but it seems the DC-FSA is better if you have only 1 child.
I think that works, just be very sure you don't go over the limit if your next job is on the calendar year. It will be up to you to self enforce the limit and I'm not sure what happens if you go over
Kaizen Soze
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Re: Clarity on FSA plan years vs. tax year

Post by Kaizen Soze »

I'm in a similar scenario. To my knowledge, it's irrelevant when you make your contributions. The plan doesn't care about the contribution schedule, only the amount within the plan period.

Example: You had $5k eligible expenses in July. You can withdraw the $5k in July and have whatever contribution schedule the plan allows for the next 11 months. You've already used the $5k for the July '22 to June '23 period and cannot be reimbursed for any expenses from Aug '22 to June '23.

My scenario is that I'm trying to change from my wife's July - June period to my Jan - Dec period. We claimed the $5k in December. I'm in open enrollment and want to know if I can open my own FSA for 2023 for $5k only using expenses from July '23 - Dec '23, after my wife's plan period is over.
Kaizen Soze
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Joined: Thu Apr 11, 2019 1:47 pm

Re: Clarity on FSA plan years vs. tax year

Post by Kaizen Soze »

Kaizen Soze wrote: Thu Jan 19, 2023 12:57 pm To my knowledge, it's irrelevant when you make your contributions. The plan doesn't care about the contribution schedule, only the amount within the plan period.
Please disregard the above. I received confirmation that regardless of the plan period, the IRS still looks at contributions from 1/1 through 12/31.
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