Welcome to our newest reader question series where we feature an inquiry submitted by the MoneyNing community, along with our answers. Today’s question relates to Flexible Spending Accounts and dependent daycare expenses.
Reader Question:
My wife’s company offers a Dependent Daycare FSA (Flexible Spending Account) so we contributed $5,000 to it this year. But we forgot to submit our receipts on time for the nearly $8,000 of expenses we paid to daycare out of this account. Is this money completely lost?
Also, when filing our taxes, we’re not getting child care benefits as it says we should have from the Dependent Daycare FSA. I feel like I’m losing from both sides, since I can’t get my contribution to the FSA back, and am not getting child care benefit on our taxes.
Thanks for your time on this.
MoneyNing’s Answer:
I’m not 100% certain, but I believe it’s a use it or lose it rule unfortunately. You may want to double check with the administrator though. Another idea, if it helps any, is to ask if you can still submit 2013 receipts towards 2014 contributions. This will help, assuming you did not already use up the full amount in 2014.
Also, and I’m not a tax professional so this situation warrants one that can get behind the idea, but I would see if it’s possible to file an amended return for the tax returns where you didn’t file for the child care credit, since you didn’t end up getting reimbursed.
I believe the IRS is reasonable. In your case, you got no benefit from the contribution, so it can be reasoned that you’re eligible for the deduction. Of course, again, I’m not a tax professional. So you should talk with one to see if this stance is defensible, but I would at least prose the idea to the tax guy.
Good luck!
David Ning, founder MoneyNing.com
What Do You Think?
Do you have any additional thoughts or ideas about how a Dependence Daycare FSA works? I don’t claim to be an expert, though the nature of my business allows me to think and understand money matters on a more complicated level.
So please share your thoughts in the comments! Sometimes, asking for help is the hardest thing to do, so when sharing your opinions, we ask that you leave encouraging, helpful tips.
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With the dependent care FSA it’s use it or lose it.
Although the Medical FSA is slightly different and it is up to your employer. They can adopt a 2.5 month eligible rollover period meaning at the end of the calendar year you have another 2.5 months to use the money. Per the IRS.gov website.
Starting in 2013 the IRS also allowed the ability for plans to roll over $500 each year.
Both of the above are mutually exclusive meaning you can only have either or.
You have to check with your HR department to see the specific guidelines they have.
Thanks for the additional info. Hopefully the reader has one of those plans that lets them roll over at least $500 a year so it’s not a complete forfeiture.
Technically, yes, it’s probably forfeit.
Since we’re in the same tax year, depending on your relationship with HR though… maybe you can still make it happen.
If it were me, I’d bake some delicious cookies and take them to the HR person who I’ve been the most pleasant to in the past. Plead your case, apologize profusely for causing extra work, and maybe they can work something out.
It’s worth a try!
That’s a great idea! You just never know what strings HR can do sometimes since they have a direct relationship with the company handling the FSA funds.
Negotiating the tax system is always fraught with difficulties. It sounds like your advice to the reader in this instance is actually very sensible and balanced. Like you say you are not a tax expert however that doesn’t mean that you don’t have an important perspective on how to assist.
Thanks for the thumbs up Jonathan. For a few thousand dollars, it’s definitely worth speaking with one (or more) tax professionals to find the best way forward!
Unless there is some different rule for your specific situation, FSAs are “use it or lose it”. I love my FSA, but I always under budget so as to be sure that I use all of it during the year. It’s a great tool for tax savings, but it’s definitely something you can’t forget to use.
Under budgeting is probably the most common tactic to not forfeit any money. Another is to try using the funds by buying extra common drugs (like ibuprofen or something) to use up the limits.
It’s really a confusing system and should be improved, but the tax benefit is sort of like free money so we shouldn’t complain too much!