I got a new job in June (about 140k/year) and signed up for the all the benefits. They offer a dependent care FSA. I decided to put in an amount equal to my monthly childcare expenses of $450 a month.
400*12=$5400
Turns out that $5000 is the yearly max, so that is the amount I put in the yearly expenditure box. I guess some of my expenses won’t be tax deductible. No big deal, right?
Fast forward to January. I have done some reimbursements, but my balance is now at $3200.
I see the wording:
“Submit your claims by June 30, 2019 for eligible expenses that you’ve had through December 31, 2018, or you’ll lose your remaining 2018 money.”
I suddenly realized that HR had accelerated my pay schedule to about $400 per paycheck rather than $400 per month. So now I have $3200 in an account that I can’t use and it will expire in 3 months. FML.
Does anyone know a way to recover any of this money?
Sorry for your snafu. Hopefully the tax break will cushion the blow somewhat. Other possibilities.
Does your employer plan have a “grace period”? If so, you may be able to submit expenses from 2019 against at least part of the unused 2018 balance. If so, the end of March would be the deadline to claim these, so check this week.
Any chance of any elderly relatives living with you? They count too.
Double check for additional eligible expenses. After school programs and certain summer camps for example count, maybe you can dig up some babysitting expenses, etc.
Hope you’re a “highly compensated employee” and they have to return some of this money as ineligible, in the same way 401k contributions may be limited. You make enough in principle, but it also depends on being in the top 10-20% of all employees by salary at your company.
Try submitting 2018 expenses from the time before you started in the plan. I couldn’t find out if this is allowed, but in practice it will come down to if the admin for the plan will take them. In practice, most don’t but it couldn’t hurt to try.
I’d do this first. And if rejected, raise holy hell - they’re the ones that miscalculated the withholdings, and withheld a full year’s worth in half a year. They’ll claim they cant “fix” it, and at this point they really cant, but they can make you whole from their mistake.
It’s a bit shady (ok, clearly shady), but could you see if your childcare provider could backdate some receipts for you, or otherwise “manufacture” some receipts? At least your intent to merely remedy your company’s error would be obvious, if ever questioned about it.
So it sounds like they actually exceeded your $5k annual amount (and the max limit)? Because 6x$450 would give you $2700 in reimbursable expenses for 2018, yet there’s still a $3200 balance?
Is this one of those accounts that is fully funded by the company from day one, so if you leave and have already received reimbursement for the full year’s amount, you never contribute, but you still get to collect? If so, make sure you take that benefit in the year you leave; at least the plan to do that will make you feel a little better now.
NOTE: I’m not suggesting this and never would. It’s merely an observation of something in our tax code.
I have a single mother tax client that watches a couple kids at her house as her only income. She makes a small enough amount to claim the Earned Income Tax Credit and essentially gets paid by the government for having a modest home business. However, she didn’t quite hit the income sweet spot. She made about $4,000 too little. I would never advise you or her to do this, but if she knew the predicament you were in, she would have benefited by giving you a receipt for $3,200 worth of child care services and helping you “launder” it through her home child care business. If she had an additional $3,200 in income on her taxes, her refundable credit would have increased.
I don’t know how many people are doing something like this, but I have to imagine these sort of tax frauds are somewhat common and really hard to detect.
To clarify what @ArthurDent said: unlike FSA, DCFSA is not fully funded up-front, it’s funded via paychecks evenly spread out through the year. Or rather throughout the employment period within that calendar year as OP learned.
Is there such a thing as over-reporting penalties? I’ve never heard of an audit where the subject was required to document they actually received the income they reported.
It will sometimes come up in the context of refundable credits. When I was volunteering in a low income clinic, we had a taxpayer who had legitimate income, claimed the EITC, and the IRS issued a 30 day letter zeroing out the income and disallowing the EITC. It was pretty difficult to provide advice to the taxpayer in that scenario.
