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

[svusa]

While going through all COVID madness in March, I completely overlooked the fact that IRS last day to file claim didn't change from March 31st. It looks like IRS only changed the date to file receipt but not a claim.

I typically, submit 1 transaction of 5K during tax time to get full reimbursement in this case 2019 contribution of my money to 2019 FSA.

Any thoughts, suggestions on if anything can be done here to recoup loss? It is my mistake, should never have waited beyond January but the hard way I learned during difficult times. :(

"Due to the impacts of COVID-19, the period of time you have to repay or submit documentation for any existing unsubstantiated 2019 claims under the Health FSA, Limited Purpose FSA, Dependent Care FSA or the HRA has been extended to May 31, 2020. No new claims can be filed for 2019."

[BillM223]

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.

[svusa]

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. 

[BillM223]

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.

[what_say]

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?

[svusa]

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  🙂 

[naprob]

Is the n-20-29  IRS notice will help?

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

"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.."

[BillM223]

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.

[svusa]

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.

[BillM223 · Accepted solution]

"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).

[what_say]

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?

[BillM223]

"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.

[hsingh80]

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.

[BillM223]

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. 

[hsingh80]

 Thank you BillM223.

 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