Dependent Care FSA question

Forum|Forum|4 years ago
February 12, 2022
2 replies
7 views

I'm working on filing my taxes, and I have an odd situation. I do not have any dependents, but one of the benefits provided by my employer is that they contribute $1000 to a Dependent Care FSA for every employee (by default, whether or not the employee has dependents). As a result, my W2 has box 10 (Dependent care benefits) filled in with $1000.

In the turbotax system, the info blurb for box 10 says the following:

Should I have an amount for dependent care benefits?

Box 10 should have an amount only if you have dependents and your employer paid for dependent care benefits.

...

If this doesn't apply to you, this box shouldn't have an amount and you can leave it blank.

According to that, box 10 should be empty because I don't have dependents. However, box 10 is not empty on the actual form I received from my employer. I figured the best thing to do would be to enter the info into turbotax exactly as it is on my employer-provided w2, but maybe that's wrong and I should blank out that box? I don't know.

Because that box is filled, one of the follow-up questions I get is "Did You have a Flexible Spending Account to pay for child or dependent care?", and after I say yes, turbotax also asks "If you had any money left in your account at the end of the year, enter the amount here. If you used it all, just enter 0." Since the entire employer contribution expired (as I don't have any dependents to spend the money on), I entered $1000 here. Changing this value affects my tax return amount, so what I should put here and whether I should even be on this question are more than just academic questions about the tax code. After filling out this question, I get the following screen:

Great news! You've got potential savings heading your way.

Since you paid for dependent care, you may qualify for a tax break. That means more money back in your pocket.

We’ll check on this a little later in Deductions & Credits for child and dependent care.

I'm not actually able to "check on this later" because I can't start that section without adding a dependent.

All in all, I'm not really sure what to do here. Any suggestions? Sorry for the long rambling post, and I appreciate any help I'll get!

DaveF1006

Level 15

No you are fine. I have never encountered this before however. The problem is that the employer has paid you an extra $1000 for a dependent care benefit co this is taxable income if you don't have child care expenses to offset it.

You did the right thing, you reported you still have $1000 in the account and it does represent taxable income to you. You may as well ask your employer to remove it from your account and pay you directly since you are being taxed on this income in the first place.

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mrudoyAuthor

Level 2

Thanks for the help!

A follow-up question if you have another moment: What are the tax implications of dependent care FSA funds expiring? Are the expired funds considered deductible? Or do you pay taxes on those funds in addition to losing them (since they expired)? Seems like an add-insult-to-injury kind of thing.

Depending on which it is, my company's benefit is either a nice gesture but ultimately irrelevant to me (if the expiring funds are not taxed), or an annoyance (if I'm on the hook for the taxes for this "benefit" that I can't use).

DianeW777

Level 15

It depends. If your DCFSA funds expire before they are used for child care then they will become taxable income to you. The dependent care benefits are provided to you tax-free until and unless they are not used for child care, even if they expire before you use them.

IRS Publication 503

New rules from the American Rescue Plan Act (ARP):

Changes to dependent care benefits for 2021. The ARP permits employers to increase the maximum amount that can be excluded from an employee’s income through a dependent care assistance program. For 2021, the maximum amount is increased to $10,500 (previously $5,000).
Temporary special rules for dependent care flexible spending arrangements (FSAs). Section 214 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 provides temporary COVID-19 relief for dependent care FSAs. This legislation allows employers to amend their dependent care plan to allow unused amounts to be used in a subsequent year. (Check with your employer about whether your benefits were adjusted.)

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