Question

Dependent Care FSA

Forum|Forum|6 years ago
October 23, 2019
2 replies
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Similar questions have been answered, but just want to clarify for my particular circumstance (and apologies if I missed a thread that answers this specifically).

I'm looking to again for the 2020 tax year to contribute the max $5k to a Dependent Care FSA. My wife and I are expecting our second child though at the end of this year and there is a possibility of her not returning to work until 2021. We'd like to however keep our first child in day care. My questions are:

1. If you make payments from DCFSA that are ineligible there is no penalty, but rather you have to include them in your income and thus pay taxes on it? (Believe this has been confirmed from other questions).

2. If my wife doesn't return to work for the entire year, we'd need to follow the above from #1?

3. In reading the IRS website one of the stipulations for this carve out is that both parents must be either full time students or gainfully employed. How is gainfully employed defined? I'm assuming since the purpose of this is to allow parents to work/attend school as long as she declared income in the amount we used the FSA for we'd be fine, but could also see there be something more concrete that's needed to be established.

Critter

Employee

1. If you make payments from DCFSA that are ineligible there is no penalty, but rather you have to include them in your income and thus pay taxes on it? (Believe this has been confirmed from other questions). This is correct.

2. If my wife doesn't return to work for the entire year, we'd need to follow the above from #1? Again correct.

3. In reading the IRS website one of the stipulations for this carve out is that both parents must be either full time students or gainfully employed. How is gainfully employed defined? I'm assuming since the purpose of this is to allow parents to work/attend school as long as she declared income in the amount we used the FSA for we'd be fine, but could also see there be something more concrete that's needed to be established. The earnings must be at least $3000 for one child and $6000 for two. Review form 2441 to see how this limitation is applied.

A

Anonymous

Q! = yes

Q2 = maybe - some plans allow paying qualified expense for a limited period after year end

Q3 = gainfully employed means each of you must have earned income - w-2 and or self-employment income

Who Can Take the Credit or Exclude
Dependent Care Benefits?
You can take the credit or the exclusion if all five of the
following apply.
1. Your filing status may be single, head of household,
qualifying widow(er) with dependent child, or married filing
jointly.

2. The care was provided so you (and your spouse if
filing jointly) could work or look for work. However, if you or spouse
didn't find a job and have no earned income for the year,
you can't take the credit or the exclusion. But if you or your
spouse was a full-time student or disabled, see the
instructions for lines 4 and 5, later. look at form 2441
3. The care must be for one or more qualifying persons.
4. The person who provided the care wasn't your
spouse, the parent of your qualifying child, or a person
whom you can claim as a dependent. If your child
provided the care, he or she must have been age 19 or
older by the end of 2018, and he or she can't be your
dependent.
5. You report the required information about the care
provider on line 1 and, if taking the credit, the information
about the qualifying person on line 2.