Does my spouse forgetting to sign up for Dependent Care FSA count as a loss of coverage qualifying event such that I could make a change to my company's enrollment?

[wendyvo22]

My spouse has had the dependent care FSA for several years, but for some reason this year she forgot and we just found out after the open enrollment for both of our (different) employers have ended.  From an IRS standpoint, I'm wondering if this count as a life event (losing Dependent Care FSA) such that I could modify my open enrollment without issues.  It seems possible from my employers website, but wondering if this counts according to IRS rules.  Thanks for reading and any tips!

[Opus 17]

You just have to try with your employer.  I think the answer is going to be no, but it is ultimately up to your employer or the plan administrator that they have selected to make sure they are in compliance, and attorneys and administrators can sometimes interpret the rules differently.

[Opus 17]

You will still be eligible for the dependent care tax credit, although the benefit is generally less than an FSA.

[yichen5616]

Do you mean one is not eligible for dependent care tax credit if he/she enrolled FSA? Thank,

[Opus 17]

They work together but the FSA is generally better.  You can use the FSA for up to $5000 of care expenses.  The credit can be used for up to $3000 of qualifying expenses for one child or $6000 of qualifying expenses for 2 or more children.  So if you provided care for 1 child and had an FSA for $4000, you can't apply anything to the credit (you already applied more than $3000 to a benefit).  If you have a $5000 FSA and provided care for 2 children, you can apply $1000 to the credit.

[yichen5616]

Thank you Opus very much for your information. I have 2 kids and forgot to enroll dependent care  FSA. Looks like I can use the $6000 of qualified expense and don't lose any tax benefit. Am I correct? Is the $6000 available no matter how much income a family has? Thank you,

[Opus 17]

The dependent care credit is a sliding scale of between 30%-20% of qualified expenses, depending on income.The sliding scale is shown on page 1 of form 2441.  Most of the time, I would expect a middle class taxpayer who can afford to keep 2 kids in care would be at the 20% end of the range (which would equal a credit of $1200.

Because the FSA saves you on social security and state income tax as well as federal income tax, I would expect most people to save between 22% and 37% on their taxes (depending on tax bracket and what state you are in).  So for almost everyone, the FSA will save more than the direct credit.  But the credit is available if you aren't enrolled or can't enroll in an FSA.  

Also, some states may have a dependent care credit that is based on a percentage of the federal credit (NY does, you would have to look up your own state) that adds to the savings and closes the gap somewhat between the FSA and the credit.

[yichen5616]

I see. I thought I lost around $1500 due to not enrolled FSA. Looks like I will not lose that much but a couple of hundreds, as I can get the $1200 credit instead. Thank you,