@pmgreg3 you hijacked anothers thread. your question is different. what do you mean by excess money getting reimbursed?
Unlike a health savings account, unused money in a DCFSA generally doesn’t roll over to the next year. Your employer may offer a grace period of two-and-a-half months into the new year to use up your funds before they expire.
The exception is for plan years ending in 2021 and 2022, as COVID-19 relief measures allow employers to permit account holders to carry over their unused funds into the next year.
Section 9632 of ARPA increased the excludable amount to $10,500 for 2021. The exclusion applies whether the dependent care assistance is provided directly through a DCAP or a dependent care flexible spending arrangement (FSA) under a cafeteria plan.
Under Notice 2021-26, unused funds remaining in an employee's DCAP in 2020 or 2021 that are carried over to plan years ending in 2021 or 2022 will remain excludible from gross income and wages for 2021 or 2022 to the extent that the amounts would have been within the exclusion limits for the years from which the amounts were carried over. Notice 2021-26, however, also clarifies that reimbursements in 2022 will be taxed to the extent that the reimbursements exceed the 2022 applicable exclusion limit if the amounts do not derive from a grace period or carryover, which could occur for a non-calendar plan year that began in 2021.
