My employer offers a dependent care FSA that ran from September 2019 through August 2020. I elected $5,000, which was withheld from my paycheck in the amount of $416.67 per month.
I paid $3,780 in daycare expenses from September 2019 through December 2019, and another $2,835 in daycare expenses from January 2020 through August 2020. My child has since stopped attending day care altogether. So, according to my employer, I had expenses in excess of $5,000 for the plan year, and was reimbursed the full $5,000. I submitted for reimbursement in February 2020, using my day care expenses from September 2019 through February 2020 which was in excess of $5,000. At the end of 2019, I had $1,666.68 in my FSA. Since my reimbursement request exceeded the funds in my FSA t the time that I submitted for the reimbursement, they reimbursed the full amount in the account immediately, and then continued to reimburse the additional $416.67 per month for the remainder of the plan year until I had been reimbursed the full $5,000.
According to my employer's plan year, I did in fact use all $5,000 of my dependent care FSA money within the plan year, and was reimbursed in full. However, in tax year 2020, I technically funded $416.67 * 8 = $3,333.33 towards my FSA (this was reported on my 2020 W2), but only had $2,835 in day care expenses that were actually accrued in 2020.
How do I handle this? Does the $3,333.33 - $2,835 = $498.33 become taxable income in 2020, since I did not technically have $3,333.33 in dependent care expenses in 2020? Or is the full amount still non-taxable since I did have eligible expenses in excess of this amount according to my employer plan year? Am I am able to claim that some of my 2019 care expenses were paid in 2020, since that is when they were reimbursed from my FSA, even though I personally paid them in 2019 and just waited until 2020 to get reimbursed? I am not sure of the distinction between "paid" and "reimbursed" in this context. I paid for 2019 care in 2019, but was reimbursed for some of it in 2020, because I waited to submit for reimbursement until I had accumulated at least $5,000 in total expenses so I could avoid having to submit a follow up claim for reimbursement.
Thanks in advance!
