Do we pay tax on forfeited dependent care FSA?

[dan-ciskey]

I put $1600 into a dependent care FSA (and that amount was reported in box 10 of my w2) in 2017 but only ended up spending $770. Turbo tax appears to have me paying tax on the remaining $830 but that money was forfeited back to the employer as the plan has no carryover. Originally my w2 was blank in box 10 and I left off my dependent care expenses so as not to get a double benefit, but I received a corrected w2 with the $1600 in box 10 and so added the $770 that was spent on child care. My refund is now lower than when child care was out of the picture so I’m pretty sure it’s taxing that $830. Is there a place to put in that the $830 was forfeited or am I stuck paying tax on that money?

[KarenJ]

TurboTaxAnnette B had a good answer for you.

You do not owe tax on Flexible Spending Arrangement.  You do not need to enter information regarding your unused FSA funds for dependent care.

A Flexible Spending Arrangement (FSA) is a special account you set up with pre-tax contributions to use for medical or dependent care expenses.  These contributions are not included in your taxable wages reported on Form W-2.  As expenses are incurred you can pay from or be reimbursed from your FSA account.

Amounts contributed to an FSA are not subject to federal income tax, Social Security tax or Medicare tax, allowing your medical or dependent care expenses to be paid with pre-tax rather than after-tax income.

[Edited 2.16.18 / 3:17 pm]

[dan-ciskey]

Follow up: it seems the only practical way to do what you’re saying would be to change the amount I enter for box 10 to $770 from $1600. This seems questionable, since $1600
Is being reported to the IRS. Is that the way to do it?

[KarenJ]

Please see the screenshot I added to my original answer.   You will find it in the W-2 section a few screens after your W-2 input.

[dan-ciskey]

Thanks so much! I missed this because I was just editing the w2 with the new info.

[KarenJ]

You are welcome!

[issa-khoury]

Hi,

I have a similar situation.  Unfortunately I forfeited $2500 of Dependent care FSA.  When I put that amount in dox 10 of the W2 and put the full amount later in the unused portion question, my tax due is higher than if I leave box 10 as zero and unused portion as zero.  Can I put zero in box 10?

Thanks!

[srobadelic]

Not seeing the screen shot to the original answer. Could this please be provided again? My employer gave me dependent care account with $500 when I did not have any dependents declared, and would not correct it when I discovered it. I forfeited the entire balance as I had no intention of obtaining dependents. Both my Health Care FSA and the aforementioned Dependent Care FSA are forfeitures, so I did not receive a dime of money not used. As I received none of this money, am I taxed for it as income? I so on this post no but I found another post on this site indicating the opposite.

[mk2020standridge]

what amount do I enter into box 10?

[MayaD]

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.

You must complete Part III of Form 2441, Child and Dependent Care Expenses to figure the amount, if any, that you can exclude from your income.

To report the Child and Dependent Care Expenses:

• Login to your account.
• Select Federal from the left Menu
• Go to Deductions and Credits.
• Scroll Down to You and Your Family.
• Select Update next to Child and Dependent care credit.

[bobby runner]

If Box 10 on your W-2 contains the amount of Dependent Care Benefits (Pre Tax) which exceeded the amounts you paid out in 2020 for Dependent Care, such excess , Turbo Tax is including such amount in your income. You are required to complete Form 2441, and it will clearly show that you have an excess contribution, and it will be automatically added to your Gross Income.  I have researched this very thoroughly and cannot find anywhere in IRC Sections 125 and 129 that considers it taxable or not. The new Consolidated  Appropriations Act, 2021 (H.R. 133,  P.L. 116-260) signed into Law on December 27,2020 provides temporary relief for taxpayers that were unable to spend down their Dependent Care by the end of the year and would risk forfeit of their contributions. Providing a taxpayer's plan permits it, such unused amounts can be carried forward to 2021 and 2022. Thus taxpayer's will not lose such amounts. However as to whether the unused amounts in 2020 are taxable in 2020, nothingnnin the law indicates either way, except Turbo Tax is including such amounts in a taxpayer's gross income

[BrittM84]

Karen,

I cannot see your screenshot/images. Can you please advise where I report the forfeited dependent care on my W-2 other than line 10? I contributed and forfeited $450.

[BrittM84]

Karen,

Can you please advise where I input the amount forfeited on my w-2? I cannot see the screenshot/images you provided a few years ago. I contributed and forfeited $450 - no expenses were incurred/used. 

[AbrahamT]

What you would simply do is input the amount of FSA Child dependent care, in your case, 1,600.00 in Box 10

of your W2.

Then, you would go into Deductions and Credits/ Child care input and enter the amount that you 

actually spent on the child care, in your case 770.00.

In your case, since only 770.00 was spent from the total of 1,600.00, Turbotax will calculate the remaining

830.00 to be taxable.

This amount will show up Line 1040 1E  and also on Form 2441.

[EDIT 1/25/2023 11:00 AM PST]  

[zhang1]

So is it the conclusion that forfeited amount is taxable?