I deposited $2,000 into a FSA account that I did not use. In going through the interview associated with the W-2, I answered "no" to the question regarding on-site child care. The next screen asks if I had an FSA which I answered "yes". The next statement reads "If you had any money left in your account at the end of the year, enter the amount here. If you used it all, just enter 0.".
I entered $2,000 and my tax refund increased! I would have thought that the taxable income would have increased since the FSA account is funded with pre-tax dollars which were subsequently not used. No, I didn't actually get to use the $2,000 but I previously avoided paying taxes on the contributions.
Why did the refund amount increase instead of decrease?
