Dependent Care FSA - missed filing deadline, IRS DIDNT extend deadline. Lost 5K :(

If I understand your situation correctly, you will have the 5k added back to your income, but you would then be eligible to apply for the Child and Dependent Care tax credit, which is based on unreimbursed child care expenses. This should recoup some of the extra tax for having to declare the $5k as taxable.

How would '5k' gets added back into income? my employer said - they can't help with IRS use it or lose it policy. Money in FSA account will be forfeited. (.. no idea who gets that money back but I don't)

 

It almost sounds like, I lost 5K plus I have to pay regular tax on 5K which I didn't use it to cover childcare costs. 

Sorry, I was not clear.

 

The amount in box 10 on your W-2 was removed from Wages in box 1. This is how it is a tax benefit. But whatever you don't spend on child care has to get added back to your income (Wages) to make up for it being removed when the W-2 was printed.

 

So when I said it would be added back to income, I meant added back to taxable income, not your wallet. Sorry that this was not clear.

 

But you agreed to this tax benefit (the FSA) on the condition that you would spend it only on child care. So, in essence, you were never going to get this money anyway (except to give to the day care).

 

But since you did spend your own money (I assume) on child care, you are able to apply it for the calculation for the Child and Dependent Care credit.

 

Depending on your adjusted gross income (AGI), you can get a credit of 20% to 35% of up to $3,000 that you spent on one child or up to $6,000 for two or more children.

 

Thus, with two children, if you spent at least $6,000, in the worst case you receive a $1,200 tax credit. This is what I meant by helping to pay the tax on the $5k added back to taxable income.

I'm in the same boat as @svusa .

Question for you @BillM223 

My employer has provided '5K' of my pre-tax income to the dependent care FSA administrator.....

and my employer set a deadline of March 31 with the plan administrator.... I hear this is not an IRS deadline, but what an individual plan has.

Now the plan administrator says there is nothing they can do about it as it is use it or lose it.....

 

@BillM223you say this 5K that is not in my hands can be added to my "taxable" income?

I'm fine with paying that tax, if I can get the remainder of the monies after paying taxes on them.

Is there a provision?

 

I'm still in search of an answer if my employer doesn't issue new W2, how 5K is going to be added into taxable income. It is like a double penalty, I lost 5K + have to pay taxes on 5K because I couldn't use it?

 

I'm not very clear, how I can claim Child Care credits, haven't gone that far into my taxes yet but hoping for some solution. 

 

For now, 5K is my contribution towards Making America Great Again during this difficult time. Have fun folks those who received $3000 check from IRS  🙂 

Is the n-20-29  IRS notice will help?

https://www.irs.gov/newsroom/irs-provides-tax-relief-through-increased-flexibility-for-taxpayers-in-section-125-cafeteria-plans

 

"or to provide for an extended period to apply unused amounts remaining in a health FSA or a dependent care assistance program to pay or reimburse medical care expenses or dependent care expenses in a manner consistent with this notice must adopt a plan amendment.."

 

The way this Notice is worded is this:

 

1. If your employer agrees to make the change to the Section 125 cafeteria plan (this is a requirement that the employer agree to this), 

2. for your dependent care assistance program (FSA), whose grace period normally ended March 15, 2020, you are able to apply those funds to any qualified expenses in 2020 up until December 31, 2020.

 

However, the way the Notice is worded is specific - you are not able to use those funds to pay from expenses you incurred in 2019, but for expenses you incurred in 2020, which may or may not work out in your favor when used in conjunction with your FSA in 2020.

 

Note that this is not different from how the grace period - if your employer's plan even allows one (they don't have to) - works today; it just extends the end of the grace period.

 

So, depending on your expenses in 2020, you may still be able to use them.

 

Please see the section entitled "B. Extended Claims Period for Health FSAs and Dependent Care Assistance Programs" starting on page 9 of the Notice (see link above). This section is mostly about a Health FSA but as the title makes clear, the same rules apply to dependent care FSAs.

 

Please consult with your employer about this to see if you are eligible.

Thanks for posting this guideline, are you suggesting unused 2019 funds can be applied towards qualified 2020 dependent care expenses - if the employer agrees. 

 

I'm trying to decode statement below - 

 

 

 

Extended Claims Period for Health FSAs and Dependent Care Assistance Programs

 

This notice also provides flexibility for a § 125 cafeteria plan to provide an extended period to apply unused amounts remaining in a health FSA or dependent care assistance program to pay or reimburse medical care expenses or dependent care expenses. Specifically, an employer, in its discretion, may amend one or more of its § 125 cafeteria plans to permit employees to apply unused amounts remaining in a health FSA or a dependent care assistance program

as of the end of a grace period ending in 2020

or a plan year ending in 2020 to pay or reimburse expenses incurred for the same qualified benefit through December 31, 2020.

"to permit employees to apply unused amounts remaining in a health FSA or a dependent care assistance program as of the end of a grace period ending in 2020 or a plan year ending in 2020 to pay or reimburse expenses incurred for the same qualified benefit through December 31, 2020."

 

That's how I read this - that you can pay for 2020 expenses using this left-over amount until the end of 2020, instead of only until March 15, 2020 (or whenever your grace period ends).

Thanks @naprob for bringing this to our attention and to @BillM223 for further clarification....

1. So if i'm contributing 5K for 2020 plan year and I have the 5K from 2019 plan year that kind of went unused, can we pay a total of 10K in dependent care expenses incurred in 2020 with this option...?

 

2. Also, I am not sure what incentive an employer has to "amend" terms of grace period to extend grace period deadline... Looks like this is wholly at the discretion of employer and as far as I understand IRS is saying "we donot have a problem if an employer extends the deadline this one time".... right?

"can we pay a total of 10K in dependent care expenses incurred in 2020 with this option."

 

That's how I read it - after all , this is no different than the current grace period functionality, if you had 5K left over from 2019.

 

"Looks like this is wholly at the discretion of employer and as far as I understand IRS is saying "we donot have a problem if an employer extends the deadline this one time".... right?"

 

Yes, the language of the Notice leaves the decision up to the employer.

I am on the same boat and I checked with my employer and they told me that we cannot extend for 2019 unused funds and I forward them this IRS document and HR lady told me this is for 2020 unused funds and not for 2019.

 

Can someone please help me here, can an employer get an extension for 2019 unused or unclaimed Dependent care FSA after the deadline. I am loosing 5K here coz of my negligence I thought all the deadlines moved to June 15.

 

 

Ask the HR person to reread the IRS Notice. Specifically, on page 9:

"Specifically, an employer, in its discretion, may amend one or more of its § 125 cafeteria plans to permit employees to apply unused amounts remaining in a health FSA or a dependent care assistance program as of the end of a grace period ending in 2020 or a plan year ending in 2020 to pay or reimburse expenses incurred for the same qualified benefit through December 31, 2020."

 

If your calendar-year 2019 dependent care plan had a grace period, when did it end? March 15, 2020, right? This is exactly what the underlined portion above is referring to.

 

Perhaps your dependent care FSA is not on a calendar year?

 

Also note that the IRS allows the employers to modify your Section 125 dependent care FSA - it does not require the employer to do so.

 

Of course, the Notice specifically states that you can use these funds from the extended grace period for expenses incurred in 2020, not 2019. For most taxpayers, however, this is likely not a problem in that they will have plenty of expenses in 2020 to reimburse. 

 Another thing HR was saying that they already closed their books and there would be audit/compliant issues.

They saying its May and deadline was march 31st :( 

So, in that case, what can I tell them as an option for me.

 

Please suggest.

 

I will send them an email again and try my luck 

 

Thank you.

Another thing HR was saying that they already closed their books and there would be audit/compliant issues.

They saying its May and deadline was march 31st :( 

So, in that case, what can I tell them as an option for me.

 

Please suggest.

 

I will send them an email again and try my luck 

I am also in the same situation like yours. My employer has not changed the deadline but my wife's has extended until Sep 2020. 

 

It will be helpful to look at the following links (https://healthequity.com/coronavirus/ and https://www.federalregister.gov/documents/2020/05/04/2020-09399/extension-of-certain-timeframes-for-employee--ben[product key removed]cipants-and-beneficiaries-affected)

Department of Labor (DOL) Issues COVID-19 Relief

On April 28, 2020, the Department of Labor (DOL) Employee Benefits Security Administration (EBSA) announced the time periods in which members can submit claims for coverage, elect and pay for COBRA continuation coverage, enroll in group health plan coverage, and file appeals for adverse benefit determinations are extended. The EBSA also provided guidance allowing additional time in which a group health plan sponsor or plan administrator can provide certain notices, disclosures, or other documents. Please see the FAQs below for more information.

 

Q: What is the impact to FSA/HRA Claims?
A: Any days within the "Outbreak Period" (starting March 1, 2020) are disregarded when calculating any of the following FSA/HRA plan periods:

• Deadlines to submit claims subject to applicable claims procedures;
• Deadlines to file appeals of adverse benefit determinations;
• Deadlines to file external requests for review of adverse benefit determinations.

 

@BillM223 

 

I am in the same situation, missing filing the Dependent care FSA claim by March 31st 2020. I was planning to enter $5000 as forfeited amount so that it gets added Line 14 of Form 2441 and I can avail the max Child and Dependent Care credit possible.

 

But the IRS instruction for 2441 seems to indicate forfeiture means only the unused funds in the Dependent care FSA.

 

From https://www.irs.gov/instructions/i2441, 

under  Line 14.

"Any amount you forfeited. You forfeited an amount if you didn't receive it because you didn't incur the expense. Don't include amounts you expect to receive at a future date."

 

Do you think its safe to add the amount I didn't claim as forfeited ?

"Any amount you forfeited. You forfeited an amount if you didn't receive it because you didn't incur the expense. Don't include amounts you expect to receive at a future date."

 

Not making the claim is the same as not incurring the expense.

 

This is the definition of forfeited funds. Forfeited funds in this case are funds that were put into your dependent care FSA that were never used by the due date for claims, for whatever reason.

 

Thanks for the quick response @BillM223 

 

If I enter $5000 as the forfeited amount should I update income to add the $5000 (which is reported in box 10 of the W2) ? It looks like IRS doesn't require the forfeited funds to be added back to the income.

 

I hope its not required. In that case I can get the max Child and Dependent Care credit. It would be $1200 for me since I have two kids (20% of $6000).

No, don't update income. Let TurboTax do any automatic adjustments necessary.

 

No, the forfeited amount is not added back to income. Your issue is that you also don't receive it - the employer reabsorbs it.

 

This is fair - you don't receive the money so you don't report it as income.

 

Yes, if you spent more than $6,000 on child care and have two kids, then the max credit is (in your case, depends on AGI) 20% of 6,000 = $1,200.