Can Dependent Care FSA be used for a child on F-2 child (non-US citizen)

[scottwilson222]

I am international students currently on F-1 visa. I work for the university and the unversity provides Dependent Care FSA. 

Can I use this FSA to reimburse my payments to child care center that my F-2 child goes to?

[pk]

@scottwilson222 , in such an account what you are doing is to essentially take a portion of your salary / employer contribution   and  keep it outside  your W-2  income.  This becomes useful  if you are not going to able to itemize  and deduct  health expenses.  See  pub 969 from the IRS   which in part says :

Flexible Spending Arrangements (FSAs)

A health Flexible Spending Arrangement (FSA) allows employees to be reimbursed for medical expenses. FSAs are usually funded through voluntary salary reduction agreements with your employer. No employment or federal income taxes are deducted from your contribution. The employer may also contribute.

Note.

Unlike HSAs or Archer MSAs, which must be reported on Form 1040, 1040-SR, or 1040-NR, there are no reporting requirements for FSAs on your income tax return.

For information on the interaction between a health FSA and an HSA, see Other employee health plans underQualifying for an HSA, earlier.

What are the benefits of an FSA?

You may enjoy several benefits from having an FSA.

• Contributions made by your employer can be excluded from your gross income.

• No employment or federal income taxes are deducted from the contributions.

• Reimbursements may be tax free if you pay qualified medical expenses. See Qualified medical expenses , later.

• You can use an FSA to pay qualified medical expenses even if you haven’t yet placed the funds in the account.

Thus since the main intent is to help you  pay for health expenses, I do not believe that you can use  the monies in this  FSA for dependent  care  ( even though one probably could argue  that without the dependent care for your child/dependent your health  could suffer  with  full school load plus taking care of the dependent.  ).   The fact that you are F-1 , implying that you must maintain  full-time  school  load, is not  germane.

Is there more I can do for you ?

[Opus 17]

While @pk is very smart, I don't think he addressed the core issues here, and maybe he can follow-up with some of the things I don't know.

To use an FSA for child and dependent care, you must meet the same qualifications as for the Child and Dependent Care tax credit.  You may also have to meet additional requirements as an F-1 student.  https://www.irs.gov/forms-pubs/about-form-2441

As a side comment, if you are eligible for the Child and Dependent Care tax credit, you should take it instead of the FSA. For 2021, the credit is much more generous than the tax deduction that would result from using an FSA to pay your expenses pre-tax.  The rules will change on January 1, 2022, and at that time, the FSA will be a better deal for people over $35,000 income (the credit will still be better at incomes below $35,000).  

To claim the credit or use an FSA, you must provide care so that you (and your spouse if married) can work full time or go to school full time.  Your student status does not, by itself, bar the credit.  Your child must meet the rules for a qualifying child dependent and be listed on your tax return.  You must provide the name, address and tax number of the care provider. 

What may disallow you is that as an F-1, you are generally taxed as a non-resident alien (unless you have been in the US more than 5 years).  Publication 519 says that for a non-resident alien to claim the child and dependent care credit, you must have "effectively connected income."  I don't know if your student stipend will qualify.  Can @pk comment?

Publication 519 also says that "The amount of your child and dependent care expense that qualifies for the credit in any tax year cannot be more than your earned income from the United States for that tax year." (page 30, https://www.irs.gov/pub/irs-pdf/p519.pdf)

Earned income is compensation from providing a service.  Most of the time, graduate students and post-docs are classified as students and they are not providing a service, they are "learning."  (Even though you go to work every day, it's not technically considered working, because you are a student.)  Now, form 2441 and its instructions allow you to report "earned income" for the purposes of the credit only, for any month that you were a full time student, and this imputed income allows you to claim the credit.  I am also aware that some universities classify their postdocs under a category that subjects them to social security and medicare withholding, which results in their income being defined as "earned" under the tax code.

Where I then have a question relates to the statement in publication 519 that you must have earned income.  Does this include the imputed income allowed to full time students in the form 2441 instructions, or is it a special rule that non-resident aliens can't use the imputed income rule to qualify.  I don't know.

Bottom line is, I think you qualify to use an FSA or the child and dependent tax credit if you are in an employment classification where social security and medicare tax are withheld.  You probably qualify even if those taxes are not withheld, using the imputed income rule in the instructions to form 2441.  However, you may want to consult a tax professional with experience filing out NRA tax returns.

And also note, Turbotax can't be used to file as a non-resident alien, you need to find another tax software company that offers form 1040-NR. 

 

[scottwilson222]

Thanks a lot for the detailed answser.

In my particular case, I have been in the U.S. for more than 5 years and am a "resident alien" for tax purposes.

My understanding regarding the "Child and Dependent Care tax credit" is that the person (child, e.g.) receiving care must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico so that s/he can be claimed as a dependent for tax purpose (According to Publication 501). 

My question was does this same requirement apply to Dependent Care FSA? and where exactly this requirement is documented?

[Opus 17]

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@scottwilson222 wrote:

Thanks a lot for the detailed answser.

In my particular case, I have been in the U.S. for more than 5 years and am a "resident alien" for tax purposes.

My understanding regarding the "Child and Dependent Care tax credit" is that the person (child, e.g.) receiving care must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico so that s/he can be claimed as a dependent for tax purpose (According to Publication 501). 

My question was does this same requirement apply to Dependent Care FSA? and where exactly this requirement is documented?

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I am not aware of any reason that your child would not qualify both as a tax dependent and for the dependent care credit or FSA, as long as they have lived with you in the US for more than half the year (183 or more nights).  The F-2 visa does not preclude them from being dependents because for children, that is determined by where the child actually lived and not by their legal residency status.  The child would need an ITIN (international tax ID number) if they don't already have one.

(To apply for an ITIN, you would print your tax return and attach a form W-7 ITIN application, including any proofs required by the instructions.  Mail the entire package to the IRS at the address for W-7 applications.  After they issue the ITIN, they will process the tax return.  To get by Turbotax's error-checking routine, you will need to give your child a fake tax number -- try 999-88-9999.  The cover it with white-out on the printed return and write "ITIN applied for.")