Do I have to report child backup reimbursement money as part of my income?

[wenbinwang]

More background here. I put in $5K in my dependent care FSA account in year 2020, and I used the child backup care benefit from employer where my employer hired a third party provider to provide this service. I got $6K reimbursement money from this third party provider since it allow me to use friends and family to provide child backup service. I pay my friends and family, than this third party provider reimbursement me for the child back up care expense. My total child care expense was more than $11K in year 2020. My W2 from employer did show $5K dependent care FSA election, should I also get a tax form to report this $6K reimbursement money that I received in year 2020? this third party provider said they don't provide tax form for my $6K reimbursement. should I still report this $6K as income even know I didn't receive any tax form for it? if yes, how do I report it on TurboTax? I would assume I would report as earned income just like W2 income, but just no W2.

[Cynthiad66]

To enter as Other Income, here are the steps:

• Sign in to your account, select Pick up where you left off
• To the right upper corner, in the search box, type in "other reportable income" and Enter
• Select Jump to other reportable income
• Next screen, Other Wages Received, select No to continue
• Next screen, scroll down all the way to the bottom, under Other reportable income, select Start
• Next screen, Any Other Taxable Income? select Yes to continue
• Enter a description and the amount.

However, the $6,000.00 of Backup child care money appears to be Aftertax.  You stated that $5,000.00 was before tax FSA.  After tax money does not have to be reported again as income.  It has been taxed already.

You will not normally be taxed on your Dependent Care Reimbursement so long as your family’s aggregate Dependent Care Reimbursement (under this Dependent Care FSA and/or another employer’s dependent care FSA) does not exceed the maximum annual reimbursement limits

[wenbinwang]

Hi, Cynthia thank you for answer my questions. I have few follow up questions here.  Why do you think $6k reimbursement from this third party provider is after tax? Does after tax mean I don’t report this $6k income since this is tax free benefits? My total child care expense was actually more than $11k in year 2020. I received reimbursement from my employer dependent care FSA account for regular child care expense since I contributed this $5k through my regular pay check, than I got another $6k from this third party provider. My employer website said “ back up care services may be taxable to me and included as imputed income in my wages if the fair market value of backup care service I received in a calendar year, combined with my dependent care FSA election exceeds $5,000.” When I combined $5k reimbursement from my FSA and $6k reimbursement from back up care third party provider, than the total amount I got was $11k, which is more than $5k. Does that mean I have to report this $6k as other income and pay taxes on it? Why shouldn’t I say “yes” when TurboTax ask me if this is Other Wage Received? I though this $6k would be wage income.  My w2 did show $5k from FSA under box 10, but my w2 didn’t include any of $6k money I received from this third party provider. 

[Cynthiad66]

This is not "Other Wage Income".  Your Backup Child or Senior/Elder care reimbursement is a taxable employee benefit paid to you in your paycheck(s).  Since you do not see the $6k listed on the W-2 as a separate item, for your clarification, it might be worth your while to contact your HR to determine how this amount was calculated and taken from.    See additional explanation of this fringe benefit below.

 What is Imputed Income? When an employee receives non-cash compensation that's considered taxable, the value of that benefit becomes imputed income for the employee. Unless specifically exempt, imputed income is added to the employee's gross (taxable) income.  Imputed income is adding value to cash or non-cash employee compensation to accurately withhold employment and income taxes. Basically, imputed income is the value of any benefits or services provided to an employee. Employers must add imputed income to an employee's gross wages to accurately withhold employment taxes.

Finally, Unless specifically exempt, imputed income is added to the employee's gross (taxable) income. It isn't included in the net pay because the employee has already received the benefit in some other form. But it is treated as income so employers need to include it in the employee's form W-2 for tax purposes

Based on the above definition of Imputed Income, it seems that this is a part of your W-2 wages already and therefore the reason the Third party did not issue you a Tax document.

When we refer to after tax, it is already included in your total compensation plan and reported on your W-2 by your employer.