I signed up for Dependent Care FSA for 2010 only to find out I might not be eligible if I do not get a job in 2010. Given the uncertainty I think I should have used just the tax credit this year. In order to take advantage of the FSA I need to be a fulltime student, working, or looking for work. I am looking for work but how do I verify that on my taxes when it's time to file.
The second issue is that I am planning to take my child out of daycare until I get a job. I would save $600 per month. However if I can't get back the money in the flexible spending would it be worth it (in terms tax savings)?
I will ask the woman who does our DCFSA when she gets in and hopefully remember to repost. So far as I know about DCFSA it cannot be used retro. In other words if you did not declare it for 2009 you cannot take it. Meh, I will look it up on checkpoint. I do know the only tax credit you can take in 2010 for 2009 is IRA contributions so I am pretty sure you can't take 2009.
The IRS deems it an insurance contract so you cannot take the exemption for 2009 unless it was already declared and funded through a qualified program. So far as 2010 goes if you have not funded it through a qualified program and you do not see using it then don't. The problem comes in if you do need it later on in the year. Unless there is a qualifing event you will not be able to enter the plan mid year. I do not have a list of the qualifying events.
The tax consequences are easy. It is an exemption, in other words any money placed into a DCFSA is exempt from your adjusted gross income. Your savings is only your marginal tax rate. This savings is also not realized until you file your tax returns in 2011.
I would not recomend trying to trick the system and claiming it in 2009. DCFSA is reported on a W-2 and is very easy for the IRS to verify. You will be audited well maybe not will but you have a very high chance.
Without looking it up, and I don't have the time, I am pretty sure there is a deduction for child care expenses. If you paid child care expenses in 2009 they can be deducted. If you are wondering the difference and exemption like DCFSA is for AGI, a deduction is from AGI and subject to floors and ceilings. In other words deductions are pennies on the dollar.
This is what I do for a living. Dependent care FSA is much more lenient than the health care FSA because it's not a pre-funded account. You can only spend what you contribute. You can change your elections with a qualifying event, such as marriage, divorce, birth of child, and increasing/decreasing work hours. So just fill out the change of status form and then you can do it again when you get a job in the future. Hope this helps!
Thanks,
Stacia
I also work in Comp & Benefits and you'll need to talk to your HR department. I would argue that you are changing providers (from a paid provider to yourself) and that is a Qualifying Event, however, there is a lot of room for interpretation in FSAs so some HR departments may push back.
As Stacia said, you can alway re-enroll once you start working and put your child back into paid daycare.