How to enter dependent care expenses without dependent care credit

[Youzer]

I am not trying to get the Dependent Care Credit. However, I do make dependent care FSA contributions and have FSA expenses that exceed my contributions. We file MFJ and claim our children as dependents. The question is, how do I enter my dependent care expenses if I am ineligible for the dependent care credit? I am using Turbotax Online. The only option I see is Deductions & Credits > Dependent Care Credit. When I click on that, it asks me eligibility questions and then says I am ineligible for the credit (which I already know) and takes me back to the Deductions & Credits window. This means that my Form 2441 makes it look like I had only FSA contributions without any expenses, so the whole amount gets added back to my income on 1040 line 1e. How do I manually enter my dependent care expenses even though I am ineligible for the tax credit. Very frustrated here. Thanks.

[BrittanyS]

If your child care expenses were covered by the FSA amount, you won't receive the credit so the message you are seeing would be correct.  The amount of the qualified expenses you entered will not be added to your taxable income either.   The summary screen can be confusing.  If it were added to you taxable income, you will see it on Line 1 of your Form 1040.  The amount will be your Box 1 wages with the amount of unused benefits with DCB on that line.  

Follow these steps to preview your Form 1040 and review Line 1 and the DCB.

1. Sign in to your TurboTax account
2. Open or continue your return
3. Select Tax Tools from the menu (if you don't see this, select the menu icon in the upper-left corner)
4. With the Tax Tools menu open, you can then:
   • Preview your entire return: Select Print Center and then Print, save or preview this year's return (you may be asked to register or pay first)
   • View only your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up, then Preview my 1040 in the left menu

If you see the full amount added, go back through the Dependent Care screens and make sure you selected and applied the expenses to the correct child(ren) and entered all of the required information for the care giver's facility.  The SSN or EIN of the caregiver has to be reported.

@Youzer 

[Youzer]

@BrittanyS I'm sorry but this does not answer my question. I am looking directly at the form 1040 before filing, not the preview screen. The problem is that there is not way to enter the  qualified expenses. I have contributions and I have qualified expenses. But the system will not let me enter the qualified expenses because I do not qualify for the credit. Again, I am not trying to get the credit. 

My W2 shows income and it shows Box 10 Dependent Care Benefits. Both of these are added together in line 1 of my 1040 because Form 2441 has no expenses against the contributions. In other words, my FSA contributions are being added back into my income, whereas the whole point of the FSA is that the contributions are supposed to be tax exempt. What am I missing?

[JohnB5677]

 Unlike HSAs or Archer MSAs which must be reported on your Form 1040, there are no reporting requirements for FSAs on your income tax return.

FSAs are generally "use-it-or-lose-it" plans. This means that amounts in the account at the end of the plan year can't generally be carried over to the next year. However, the plan can provide for either a grace period or a carryover. The plan can provide for a grace period of up to 2 1/2 months after the end of the plan year. 

FSAs are usually funded through voluntary salary reduction agreements with your employer. No employment or federal income taxes are deducted from your contribution. The employer may also contribute.

Also. you cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) if they were paid with pre-tax dollars from an FSA.

If you have any unused amounts in your FSA, that amount is forfeited, and since you already got a deduction, you cannot deduct the loss.

Please see Flexible Spending Arrangements (FSAs)

If I've misunderstood your question, and this does not completely answer it, please contact us again and provide some additional details.

[Mike9241]

should be under deductions and credits > you and your family > child and dependent care credit (even if you're not getting the credit)

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have you entered your dependents info yet and specifically in part III the dependent care expenses 

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both spouses must have earned income or be disabled or full-time student to allow for any child care expenses  so if your answering the eligibility questions and one spouse does not have earned income, is not a student and is not disable then there is no offset allowed for the expenses. 

[Youzer]

Hi, @JohnB5677.

I'm afraid you misunderstood my question as being about healthcare FSAs. My question is about Dependent Care FSAs. It also doesn't get to the issue of why the FSA contributions are being added back to my income and I can't enter expenses in TurboTax. I understand how the FSA works. I made voluntary contributions, which were deducted from my paycheck and deposited in a DCFSA account. I then made qualified expenses and the DCFSA service provider disbursed the funds.

This is where you lose me:

> Unlike HSAs or Archer MSAs which must be reported on your Form 1040, there are no reporting requirements for FSAs on your income tax return.

The FSA deductions are not included in my main income (W2 box 1). But they are included on my W2 as "dependent care benefits" (W2 box 10). This then gets added back to my income on the 1040 line 1e, which then gets added back to my AGI.  So my tax liability ends up including these funds, which were supposed to be exempt from income tax. Why would that be? The only thing I can think of is that it's because TurboTax doesn't know that I spent the funds, and there is no way to enter that on the form because I am ineligible for the dependent care credit. Does that make sense? What do you think I am missing?

[Youzer]

Hi, @Mike9241 You write:

>should be under deductions and credits > you and your family > child and dependent care credit (even if you're not getting the credit)

The problem is that there is no way to enter the expenses. Because once the system sees that I don't qualify for the credit it does not give me the option to enter expenses anyway. See screenshot.

>both spouses must have earned income or be disabled or full-time student to allow for any child care expenses  so if your answering the eligibility questions and one spouse does not have earned income, is not a student and is not disable then there is no offset allowed for the expenses. 

I don't think that's correct. The DCFSA and the dependent care credit are different things. I am ineligible for the credit, but we should still be eligible for the DCFSA and we have in fact been making DCFSA contributions, which have been disbursed. Are you saying that if one spouse does not have income and is not a student or disabled the family is ineligible for the FSA deduction? That would explain it but I have never seen that mentioned in discussion of FSAs. Do you have a source or regulation that says that? I can't find anything on Google.

>have you entered your dependents info yet and specifically in part III the dependent care expenses 

I have entered the dependents into the system and they populate on the 1040. But the system never takes me to Part III to enter expenses for the reason I explained above.

Thanks

[Youzer]

Let me ask it another way: does eligibility for the dependent care FSA depend on being eligible for the dependent care tax credit? Or can you be eligible to make tax-free contributions to a DCFSA even if you do not qualify for the dependent care credit?

If your answer is that you need to be eligible for the credit to get the benefit of the DCFSA, what is the source or regulation that says that?

Thank you.

[CatinaT1 · Accepted solution]

When you have a dependent care FSA, you must qualify for the Child and Dependent Care credit, even if you are not taking the credit. One of the qualifications is that both spouses have income.

When Dependent Care Benefit is reported in box 10 of your W2, you must file Form 2441 to reconcile the money used in the FSA as a qualified expense. If you do not have qualified expenses to offset the amount in box 10, it is added back to as income on your return.

The details are found here: Instructions for Form 2441

@Youzer 

[Youzer]

Thank you. That is disappointing but does appear to answer my question.