Dependent care FSA limit when spouse is highly compensated employee

[sungsoha]

My spouse is categorized as a highly compensated employee and his company says the maximum amount he can set aside for Dependent Care FSA (DC FSA) is $575.

Can we still contribute a maximum of $5,000 if we are married and filing jointly? In other words, can I contribute $4,425 for DC FSA?

[ColeenD3]

Yes, you can both contribute to the FSA. You should not contribute over $5,000 between you or it will revert to becoming income.

[Opus 17]

"You" (spouse #2) can't contribute to spouse #1's DCFSA.  Only spouse #1 can contribute, through a section 125 cafeteria plan offered by employer #1.

Spouse #2 can contribute to a separate DCFSA at spouse #2's employer, if offered.  The maximum overall contribution for both spouses combined is still $5000.  The limitation on spouse #1 does not affect spouse #2 if spouse #2 is eligible through employer #2. 

[m535is]

Does this still apply in 2023 and 2024?

[Opus 17]

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@m535is wrote:

Does this still apply in 2023 and 2024?

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None of these laws have changed.  Spouse #1 can contribute up to $5000 through their employer (if offered); spouse #2 can contribute up to $5000 through their employer (if offered).  Spouses who are considered "highly compensated" by the IRS or who own 2% or more of the business may have reduced compensation limits.

If married filing jointly, the maximum combined exclusion is $5000.  Any excluded amount over this will be added back to taxable income, although there is no additional penalty.  If the spouses file married filing separately, each spouse can only exclude up to $2500, and only if they claim at least one child as a dependent.  Any excess exclusions will be added back to taxable income.  

[etmfour]

What if each spouse can contribute to an individual employers Dependent Care FSA, but only one meets the highly compensated employee threshold? Does our situation limit us to a total $3600 contribution limit set for a highly compensated employee, or can we still collectively contribute at the $5000 amount?

[Critter-3]

The max combined contribution is  $5000 per tax year  so if one person's contribution is limited the other person can pick up the slack unless they are also limited.