Why does Turbotax think my W-2 Box 10 Dependent Care Benefits (FSA) are taxable?!

[spatch1215]

Turbotax is incorrectly calculating that my Dependent Care Benefits (FSA) on W-2 box 10 are taxable even though they should be tax free as both parents work and we paid for eligible daycare. What's going on and how should I fix it? Seems like a turbotax glitch?

[spatch1215]

Ah! There may be a Turbotax glitch in Form 2441!

It seems like if you don't enter both spouses W-2s BEFORE you begin the Dependent Care Credit section, Turbotax won't let you generate a correct 2441 with dependent care expenditures (thus thinking your FSA contributions taxable). It kept asking me whether I was disabled or a full time student and wouldn't let me enter any daycare expenses. I think that Turbotax thinks that one or both spouses might not be working if BOTH W-2s are not put in there beforehand?  And it apparently won't correct itself once the second W-2 is entered. Once I entered BOTH W-2s, deleted my form 2441 per the section below, re-entered my information, it finally asked for my daycare expenses and worked fine!

https://ttlc.intuit.com/turbotax-support/en-us/help-article/small-business-processes/delete-form-244...

Turbotax, please look into this issue!

[BillM223]

This is not a "glitch"; instead, the program is working correctly.

Contributions to your Dependent Care FSA are tax-free only if you can show that you paid for qualified Child and Dependent Care benefits in 2022. That is, if you contributed $1,000 to your FSA in 2022, and this amount appeared in box 10 on your W-2, then you have to show $1,000 in payments to providers of the care in 2022.

Note that before your W-2 is printed, the box 10 amount is removed from Wages in Box 1, so this income already starts out as "tax-free" (well, pre-tax). So if your return does not document that the Box 10 amount was spent on qualifying child and dependent care services, the box 10 has to be added back to income.

So, as soon as your W-2 is entered, the Box 10 amount is added back to your income, until such point as you demonstrate that the contributions to the FSA were matched by qualified expenses for child care services. This is not a case of TurboTax filling out a "false 2441"; it's just a case of TurboTax having to add back the Box 10 amount until you enter the required expenses to document them.

[spatch1215]

No, there's a problem still. Turbotax wasn't getting my Dependent Care Section (Form 2441) right and wasn't letting me enter any expenses. It kept asking me if I was disabled or a full time student and wouldn't let me enter daycare expenses or take the credit. However, I started this section BEFORE I entered my spouse's W-2. But after I entered my spouse's W-2 it STILL wouldn't let me enter my daycare expenses.

I think if the Dependent Care Section (Form 2441) is started BEFORE both W-2s are filled out, it may not let you enter the dependent care expenses and says you aren't eligible for the credit because it may not think one of the spouses are working? When i entered the second W-2, deleted my initial 2441 form (see below), and re-went through it again it finally asked me for my dependent care expenses and worked fine. I think turbotax may have glitch in that form 2441 doesn't self-correct once the second W2 is added. Turbotax, please check this issue CAREFULLY as I think there's a bug here.

https://ttlc.intuit.com/turbotax-support/en-us/help-article/small-business-processes/delete-form-244...

[aesmith4]

I did all of this and TurboTax is still counting the amount in Box 10 as taxable income.  I have 2 kids under 12 and paid nearly $11,000 in child care expenses, I qualify and its like TurboTax thinks that Box 10 was going to be reimbursed by my employer, which is not accurate.

[BillM223]

1. What was your box 10 amount on your W-2?

2. When you entered both W-2s, you made sure they were assigned to the right spouse, right?

3. You entered the W-s before you started on the Dependent Care expenses, right?

4. You entered the identifying information (like name, EIN or SS, etc.) for the care providers, right?

5. Did you carry over any expenses from 2021 to your FSA?

6. "its like TurboTax thinks that Box 10 was going to be reimbursed by my employer" - I don't understand this sentence. It is normal that any amounts contributed to your FSA are used by your employer to reimburse your dependent care expenses when you pay the expenses and report them to your employer. Are you trying to say that the box 10 amount is being added back to your income?