I have a 5,000 childcare FSA, but spent ~11,000. Why can't i claim that extra 6,000 for the Dependent Care Credit?

[Chuck123]

Thanks for taking the time to explain how to get the dependent credit to calculate correctly   - That worked - it corrected my credit to $200 - I appreciate the help

Turbo tax should improve this to just simply ask the question did you contribute to an FSA and how much when you are working on the Dependent care credit - as on my actual W-2 it is blank for #10 - although I see what you are saying to go ahead and put $5,000 in the box so Turbo tax will calculate the Dependent care credit properly

Thanks again

[BMcCalpin]

Please ask your employer for a corrected W-2. The W-2 is reported to the IRS so this means that your tax return will not match the W-2 that the IRS has.

Also, please confirm that your employer removed the should-have-been-Box-10 amount (your FSA contributions) from your Wages in Box 1 on your W-2. If not, then you paid income tax on that $5,000 when you should not have.

P.S. Note that Box 10 contains ALL the benefits paid to or for your FSA (even if more than $5,000). But the first $5,000 of such benefits are not included in Box 1.

The IRS says: "

Question

Should I include the amount in box 10, Dependent Care Benefits, of my Form W-2 when calculating my income?

Answer

Box 10 of your W-2 shows the total amount of dependent care benefits that your employer paid to you or incurred on your behalf. Amounts over $5,000 ($2,500 in the case of a separate return filed by a married individual) are also included in box 1.

"

See https://www.irs.gov/faqs/interest-dividends-other-types-of-income/employee-reimbursements-form-w-2-w... 

[Chuck123]

Although the FSA Care deductions happened in 2017 I did not get reimbursed until February 2018

So would it be the 2018 W-2 that has to be amended ??

I did not have 2018 Dependent care deductions in 2018

Neither my 2017 W-2 or my 2018 W-2 has anything in it for Box 10

Since I was reimbursed in 2018 does it reduce my Dependent care credit in 2017 ??  or does it effect my Dependent care deduction in 2018 ???

[BMcCalpin]

As I understand it, you had payroll deductions for your FSA removed from payroll in 2017, but the FSA did not pay those child care expenses until early 2018, right?

If so, you need to ask your employer if their FSA plan contains a "grace period", that is, if the plan allows for some or all of the FSA funds collected in 2017 to be carried over to the first three months of 2018 and spent then.

If so, you recall the "unusual" situations I mentioned above near the end of the interview? Yep, this is one of them. Check the box "We paid 2018 expenses using excess contributions that were carried over from 2017." and on the next screen, you will be asked for the amount of the carryover.

If, on the other hand, your FSA doesn't give you the ability to carry over any FSA funds, then you will have to check the other situation ("In 2018, we paid for 2017 care expenses that weren't reported in 2017"), and probably have to use IRS Pub 503 (https://www.irs.gov/publications/p503#en_US_2018_publink[phone number removed]) to calculate the amount to enter (TurboTax will tell you where to go).

Then you should have a heart-to-heart chat with your HR people to encourage then to get your W-2 right the first time, and the FSA expenses paid in the proper year.

[Ground Sloth]

What happens if an employer overfunds a dependent care FSA account (over the $5,000 annual limit).

Is there any penalty in spending these dollars on daycare expenses?

[Critter]

excess FSA contributions are put back into your income on the return ... there is no penalties  and no benefits to be had either. 

[yamchito]

After looking for days I came up to this thread and your explanation is really awesome. It's been some months already but I need to ask this... My FSA is listed in my W2 box 14, as 'FSD 5000'...

It should be in box 10 if I understood well, then I should tell my employer to correct it and put it in box 10?

[KarenM90]

Yes.  Amounts that appear in box 14 are for informational purposes only.  

If your FSA (Flexible Spending Account) was used for Dependent Care Benefits with pre-tax dollars, the amount used should appear in box 10 of your W2.  

Contact your employer for clarification.  

[Hal_Al]

If you are unable to get your employer to correct it and  you're SURE that amount is  qualified Dependent Care Benefits, then enter it in box 10, instead of box 14, at the W-2 screen to get TurboTax to handle it correctly. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS. 

[nitadragoo]

so we contributed to dependent spending (FSA) for 2020 through husband's work and is noted on his W-2 box 10 for $5,000.  We carried over, in the plan grace period $2,500 from 2019.  All funds were used in 2020 to pay for preschool.  So only one income and AGI is to much, so do not qualify for credit, but Turbotax is adding back the FSA funds ($7,500) to wages on line 1 of 1040 and being taxed.  Turbotax doesn't ask me to enter the child care expenses to offset these FSA payments.   I have tried to manually enter on for 2241 but Turbotax won't let me enter the numbers.  Suggestions?

[BillM223]

Yes, do not try to enter these amounts directly on the 2441, this would negate the accuracy guarantee.

Instead, open your return, and do a Search (upper right) for child and dependent care, then click on the jump-to link.

Answer "yes" that you have such expenses, and answer the questions about being a student or being disabled - note, if one of you had no income, the presumption is that you are not eligible for the credit or deduction unless you were a student or were disabled. If so, at this point, when you hit Continue, you will be knocked out of the interview. Go back and add earned income for both spouses or indicate that one was a full-time student (if true).

Once you have entered at least one child in Personal Information and have entered earned income for both of you, then the very next screen is "Whose care did you pay for?", and you can continue from there entering expenses. 

Does that address your situation?

@nitadragoo

[nitadragoo]

Sort of..........So I answered the questions, but neither of us are full-time students or disabled.  We only have my husband's income as I am stay at home mom, so I get knocked out of the interview.  Since husband is only income, how do I add earned income for me if there wasn't any?

[xmasbaby0]

@nitadragoo If you are trying to get the childcare credit and one of you does not work --- you cannot get the childcare credit.  You have to be able to show income from both parents --- the childcare credit is for parents who have to pay someone for childcare while they both work.  If you are a stay at home parent who earned no income you should not even be trying to use the childcare credit.

[nitadragoo]

I am not trying to use child care credit.  Like I said on my first post I am trying to enter my child care expenses so that it will offset the money used in the FSA account (W2-line 10).  Right now turbotax is treating it as income.

[MayaD]

Even if you don't qualify for the Child and Dependent Care Credit you still need to go through that section in order to enter your provider info and expenses to offset the amount in box 10.

To enter your Child Care Expenses:

• Log in to your account. 
• Select Federal from the left menu.
• Go to Deductions and Credits.
• Scroll down to You and Your Family.
• Click start next to Child and Dependent Care Credit