Do i have to forfeit extra funds in Dependent Care FSA?

March 13, 2017 10:03 AM

In contributed to our dependent care FSA in January, before we un-enrolled our son so my husband could stay home with him full time. Our benefits administrators are now telling me that the amount already contributed to my FSA this year can only be used for services that took place while my son was enrolled, so we have funds beyond what was spent in January. Is this a lost cause or worth pursuing?

I elected to contribute the maximum amount for our dependent care FSA this benefit year (CY 2017) and contributed in the initial pay periods in January. At the time, my husband was home with our son due to seasonal slowness at work, so we did not have fulltime daycare expenses, but we'd planned for him to return to daycare full time in March, so we expected to have well over $5000 in childcare expenses this year. Due to some changes at work, my husband decided to stay home full time with our son.

I completed the necessary documentation of un-enrollment in daycare asap, in order to stop contributions to my dependent care FSA (unenrollment was considered a "life event"). The daycare used the last day he attended as is unenrollment date (1/6). Because of contributions in January while he wasn't at daycare full time, I now have funds in the account above and beyond the amount we spent on daycare in January (about $500 extra). According to our benefits administrators, I cannot submit any claims for the time period after I stopped contributing to the account, even though there have been times I've needed to use child care so that I can work (drop in services or babysitter rather than full time care - and i'm sure we'll have more times throughout the year).

Can I use the funds already available in the account for childcare expenses incurred sporadically throughout the year, if those allow me to work (when my husband cannot provide care)? Is re-enrolling him in some type of childcare in order to change my status in the FSA program the only way to gain access to those funds again? Is it worth consulting a tax attorney since we only have $500 and they could charge that much in post-tax dollars?

posted by moshimosh to Work & Money (5 answers total)

My understanding, as a parent who has used the DC FSA for a few years and is in a similar situation at the moment, is that you cannot use a DC FSA when one parent does not work. The qualifying event wasn't un-enrolling, but the fact that your spouse stopped working. So I think that while your spouse is a SAHP, you cannot use DC FSA funds for childcare expenses. You would need a qualifying event (spouse employment) to be able to start using the $ again.

It's frustrating as hell. My spouse stopped working on 2/24 in preparation for a big interstate move and it would have been GREAT if we could have continued after-school care, ESPECIALLY because we had already paid in for it. But instead we just lose the money and he has to stop what he's doing to get the kid from school early. And we can't use the money at all once I switch jobs even though we'll need FT care all summer.
posted by rabbitrabbit at 10:38 AM on March 13, 2017

Best answer: Benefits Manager Here: You can only use the funds for care provided while your account was active.

You should also be aware that DCFSA funds can only be used for care provided to allow parents to work, actively look for work, or attend school. So if your husband wasn't working in January you aren't allowed to use those funds for that time either. Are you going to get caught? Probably not, but it is against the rules.

I say this because you may be able to make the argument for a cancel and refund on the basis that you did not actually qualify for the plan. At my office we would allow an administrative correction for that. We would invalidate the account entirely, refund (minus taxes) any remaining balance and then you would also need to account for any reimbursements that you did make on your next tax return.
posted by magnetsphere at 11:01 AM on March 13, 2017 [3 favorites]

You have to use the funds during the specified period in your plan (e.g. when the plan was active or in grace period).

But, as noted, this is a problem as well:

if those allow me to work (when my husband cannot provide care)

Why can't your husband provide care? The IRS only allows you to claim tax credits for childcare if the reason is "because he's at work/looking for a job" as rabbitrabbit mentioned. Here is IRS Publication 503 which explains the dependent care tax credits (same rules apply to the FSA, I think, but I am not an accountant) which explains pretty well that the explicit purpose of this account is to help you pay for childcare because you have no other option while you are at work. If you have someone at home who can watch the kid or you are available (even if you are doing something essential like grocery shopping) you can't use these funds for that period of time. It's just so someone can watch the kid while you're working or looking for work.

I'd try magnetsphere's suggestion. But otherwise, yes, those funds are probably forfeit.
posted by epanalepsis at 11:14 AM on March 13, 2017

Response by poster: magnetsphere - do you have any recommendations for broaching this topic with our benefits team? I'm hoping to try to get the account invalidated and get the refund without causing issues for our 2016 funds when my husband was working and our son was in full time daycare. We have not made any claims for reimbursement for 2017 yet.

I'm part of a large corporation so typically contact our benefits administrators via an online portal or email, though there is an 800 number I could call. There isn't anyone in our office that I can speak with in-person.
posted by moshimosh at 11:29 AM on March 21, 2017

Best answer: I'm not magnetosphere, but I'd send an email to HR with something like the following,

Hi,

When I estimated our FSA for 2017, my husband was working but he has not been working so far in 2017 so I think we don't qualify for the FSA. Could you please cancel our participation and undo the contributions for 2017?

Thanks,
moshimosh
posted by rabbitrabbit at 3:28 AM on March 22, 2017 [1 favorite]