Flex Spending

[RNic]

How I can handle this scenario in Turbo Tax:

Employer's FY goes from July to June. In 2020 FSA selected with 2K (July 2020-June 2021). Child turned 13 on October 2000. All 2K childcare FSA was spent prior to child's 13th birthday in 2020. Employer deducts from paycheck all 2K in equal amounts through the entire fiscal year.  So, no payment for childcare was made for 2021, but the deductions continue until the end of the FY (June 30, 2021). Because of this 2021 W-2 shows 1K in Dependent Care Benefit.

When entering the W-2 information, Turbo Tax asked if any money was left on the account at the end of the year, which is "no' because all was spent in 2020.

Turbo Tax, under Personal Deduction and Credit (You and Your Family section), asked to review "Child and Dependent Care Credit". It asked "Did you pay for child and dependent care in 2021. Which is "no", since all payments were done in 2020. 

Any Idea how to enter information in Turbo Tax to reflect what happened?

[Opus 17]

How did you pay the provider? And how did you get reimbursed? I assume you could only get reimbursed for $1000 in 2020 and $1000 in 2021, Or did the plan allow you to get the reimbursement before your account was refilled? What is the amount in box 10 of your W-2?

[RNic]

Thank you for your reply.

I paid the provider by check prior to the child's 13th birthday.  Employer deducted from paycheck the 2K in equal amounts from July 2020 through June 2021 to fund my FSA. Once the money was on the account, I would submit a claim to get the money back. Plan did not allow to get the money back prior to being refilled. Box 10 of W-2 is 1,000.

Thank you.

[Opus 17 · Accepted solution]

@RNic 

The other thing we have to do is look at form 2441 on your 2020 tax return. However, I think you are out of luck.

The dependent care credit is limited by law to expenses incurred during the tax year. That means that you only have eligible expenses in 2020 and not 2021. You would need to report in TurboTax that you had a $1000 FSA, that you did not forfeit it, but that you had no qualifying expenses. The $1000 will be added back to your taxable income. However, there is no penalty for this situation.  (And in fact, you come out a tiny bit ahead anyway, because the FSA deduction was not subject to Social Security tax and you don’t have to pay that back, so you are about $75 to the good.)

Depending on your overall expenses for calendar year 2020, you might have claimed an additional credit on form 2441 for expenses that had not been reimbursed by the FSA by that point.

But I think in this case, the law and your employer‘s policy work against you.

[RNic]

@Opus 17.

I had the same feeling. 

Thank you for taking a look at it and confirming.