Splitting Dependet Care Assistance Plan?

[User2698470]

Hey Tax Experts Community, I could use your valuable help one more time.

My wife and I work for the same employer, we maker about the same and even though we combine a large portion of our finances, we keep it 50/50. 

We have a benefit at work called DCAP, some people call it Dependent FSA. We get to fund an account with up to $5k a year per household with tax free money for qualifying expenses, such as day care.

We enrolled last year (for this year) and each of us is contributing $2.5k to keep our finances 50/50. We are still under the $5K limit per household, it's just that it comes from two separate DCAP accounts.

Is it OK for us to do that? 

I read the company handbook and the tax code and couldn't find this situation called out. I found that you cannot claim more than $5k per household and that you cannot double dip on the same expense, however, since we pay $15k in day care, we are not using our $2.5k to get reimbursed for the same receipt twice.

We are about to enroll for next year again, we don't want to enroll one person for the whole $5k because it's going to complicate our finances, it's just easier to do 50/50.

However, if someone were to put the whole $5k, how can we calculate how much after tax money the non-DCAP enrolled spouse has to reimburse the other?

Thank you in advance for your help. 

[Opus 17]

As long as you file a joint tax return, it doesn’t matter how you divide the enrollment for the FSA. As long as your total enrollment is not more than $5000, you will receive the same tax benefit no matter how you divide the enrollment.  

However, if you intend to file as married filing separately, the maximum per spouse is $2500, and the spouses cannot use the FSA on their tax return unless they claim that specific child as a dependent on their tax return. So if you have two children and you file separately, your FSA enrollment is limited to $2500 per spouse and each spouse must claim one of the children as a dependent on their separate tax return.  (If only one child is enrolled in an eligible daycare program, then only the spouse who claims that child as a dependent could use a $2500 FSA and the other spouse will not qualify to use the FSA at all, if they claim the second child as a dependent.)

FSA enrollment reduces your federal income tax, your state income tax, and your Social Security and Medicare tax. The exact amount that it saves you depends on your tax bracket. For example, in New York State with a married couple filing jointly and a combined income over $110,000, the federal tax rate is 22%, the state tax rate is 7%, and Social Security and Medicare is 7.65%. So the FSA reduces your taxes by a combined total of 36%. If spouse a carries the entire FSA enrollment of $5000, then spouse B would owe spouse A $2500 and spouse A would return 36% of that to spouse B as the tax savings, for a net transfer from spouse B to spouse A of $1600.   

Applying the numbers to your exact situation would require knowledge of your total income, and your state and federal tax brackets.

[User2698470]

Thanks for the detailed response.

Indeed, we are filing jointly, since we can do the $2500 each, then there's no point in one spouse taking the full $5k and the reimburse the other.

Thanks again!