@JamesFan wrote:
Actually I spent more than $16000 in daycare in 2021 but haven't requested any reimbursement of my 2021 $5000 FSA yet.
And I also pre-elected another $5000 FSA for 2022 which will roll up to $10000 FSA which I plan to use in 2022.
Are you sure I "would exceed the allowable amount" if I use all the $10000 to reimburse 2022 expense?
I talked with our HR department and the answer I got is I have $10000 to spend if I don't reimburse my 2021 expense.
Under current law, the maximum allowable FSA reverts to $5000 for 2022. You would certainly have $10,000 in your account to spend. But when you report on your 2022 tax return that you spent $5000 in current benefits and $5000 in carryover, the overall $5000 limit will be applied, and the other $5000 will be added back to your taxable income. There is no additional penalty in this case, but you don't get a $10,000 tax break, just the $5000 allowed by law.
I don't know what's in the long-delayed "build back better" but it might include another temporary increase of the FSA limits on the basis of the continued "emergency", in which case things might change (if it passes). As of now, what I wrote above is what will happen under the current tax laws.
