dependent care accounts

LillibetteV

Our open enrollment to set up a dependent care account through my husband's work is next week and I'm confused because the plan year doesn't line up with the calendar year. The way I read it we can put in $5k per CALENDAR year and then have to use all that money by the end of the PLAN year (July 2017-June 2018) or lose it. We won't be needing daycare until January 2018 but given how expensive it is in Boston $5k/year is kind of a joke since it doesn't come close to the true cost (but hey - I'll take any tax benefit I can). Does anyone have an insight on whether or not I can put $5k during 2017 and then another $5k in 2018 and then use that full $10k in 2018?? I'm going to call my husband's HR department but previous experience has taught me that they are incredibly incompetent so I wanted to see if anyone had a similar experience before I called so that I could be armed with as much information as possible. Particularly @hoffse or @Xstatic3333  any ideas?  The only hiccup I foresee right now is you don't seem to be able to change the payroll deductions mid-way through the plan year so how would I set the deduction now to make sure that $5k comes out in 2017 and $5k in 2018? 

cbee817

I don't have the plan vs. calendar year issue, but any money taken out for 2017 has to have corresponding dates of day care services (on the bill) for the same year in order to be reimbursed. The system we use has us submit bills online so the first eligible bill for 2017 was January's bill. However, if the bill was for dates of 12/30/16 - 1/27/17 (as an example), I would have to deduct the days of 12/30/16 and 12/31/16 from my January 2017 submission or else the entire submission would be denied. I then get reimbursed $192.31 on the weeks opposite my paycheck. On our taxes we are required to enter how much we spent for the calendar year, the provider name, tax ID, and the dependent(s) that received the benefit. Our day care provides us with an EOY statement. 

I would think the withdrawals would begin on January 1st regardless of plan year. I don't really see how you can take $5K out in 2017 if you have no day care expenses for the calendar year, but maybe there is a loop hole for plan years that don't match up with calendar years.

LillibetteV

cbee817 said:

I don't have the plan vs. calendar year issue, but any money taken out for 2017 has to have corresponding dates of day care services (on the bill) for the same year in order to be reimbursed. The system we use has us submit bills online so the first eligible bill for 2017 was January's bill. However, if the bill was for dates of 12/30/16 - 1/27/17 (as an example), I would have to deduct the days of 12/30/16 and 12/31/16 from my January 2017 submission or else the entire submission would be denied. I then get reimbursed $192.31 on the weeks opposite my paycheck. On our taxes we are required to enter how much we spent for the calendar year, the provider name, tax ID, and the dependent(s) that received the benefit. Our day care provides us with an EOY statement. 

I would think the withdrawals would begin on January 1st regardless of plan year. I don't really see how you can take $5K out in 2017 if you have no day care expenses for the calendar year, but maybe there is a loop hole for plan years that don't match up with calendar years.

That's kind of what I'm hoping for! 

cbee817

We deal with a benefit solutions company for this- not sure what your DH has set up, but it might be easier to reach out to them? Or ask DH if he has some co-workers in the same situation and how they handle reimbursement of plan vs. calendar year? 
That would be amazing to get 10k off the first year- esp with the infant price usually being the highest! 
We have only 2 more payments left for DD#2- feels so surreal.. can't believe we won't have to deal with daycare anymore. 

hoffse

Unfortunately I don't think there's a loophole.  The IRS sets the use-it-or-lose-it rule, not your specific plan.  Obviously double check with the HR people, but I'm pretty sure you can only use 2017 contributions for 2017 expenses.  You may have a few months when you can submit claims from the previous year before the money is clawed back, but services have to be rendered during the same calendar year as contributions to count.  I don't think dependent care FSAs have a grace period that let you carry them over to the next calendar year.  Note that some healthcare FSAs do have a grace period, so make sure you are reading about the right kind of account when googling.  They really should have named them different things....

It's confusing when plans start mid-year, but try to think of it as an administrative/open enrollment thing, rather than a tax thing.  In terms of what you record on your taxes, the calendar year is what matters.

**Disclaimer: this is off the top of my head, so you should definitely double check.  I really hope I'm wrong, but I'm pretty sure this is how it works for all plans.

LillibetteV

Bummer. It does have a grace period (plan ends in July and you have until September to use those funds), but it's super annoying that they can't make the plan year the same as the calendar! I'm going to have to call because even if we can't contribute in 2017 I want to use it in 2018 when we start daycare, but that will be well after open enrollment and the birth since we're taking extended parental leave... and then if I start at open enrollment 2018 we'll be making large contributions to get all $5k for that year in and I feel like we'll always end up being stuck in that pattern. 

This should be a fun call with his HR department. It took them a month to figure out how to add me to his insurance plan when I changed jobs (the girl didn't understand that losing my health insurance when I changed jobs counted as a qualifying event....I even had to email her the regulation which she tried to tell me was wrong and I then had to explain it to her supervisor who also didn't understand. They are the reason government employees get a bad reputation...)

smerka

If you can't get a straight answer from HR, I would consider not risking it and wait until 2018 to start. You would qualify for the dependent care credit which would likely equal $600 (assuming your expenses are like Chicago and you'll be paying $2,000+ per month). You can not double dip with the FSA and dependent care credit. So do the first part of the year as dependent care credit and second half, use FSA money. Hoffse can confirm if that plan works. 

Xstatic3333

Wow @LillibetteV my head is spinning from this conversation! I did have my H sign up and we'll be maxing it out (which will only cover half our expenses even though we're only doing two days a week of center care  ) but I really need to learn more about how the system works. I'm not sure you're even allowed to sign up before your child is born. H has a friend who had a baby last summer so probably just missed open enrollment. I'll see if he knows how your situation would be handled. The timing is more straightforward for us since we start daycare in May and will begin contributing to the plan in July, so the money will just be passing right through. 

LillibetteV

@smerka - oh yea Boston ain't cheap either! If we get our preferred daycare it will be $415/week. The back-ups are similarly priced. In-state college tuition is cheaper than infant daycare!

@Xstatic3333 that is another good point for me to ask hahaha. I'd rather wait until the kid is born anyways, but I just don't trust them to count that as a "qualifying event" without a fight based on my health insurance experience lol. I should see if I can find how long after the birth you have to sign up - I can't imagine I'll be lucky enough that it's 6 months and I can start deductions in January and make everything easy! 

Xstatic3333

Ugh they're so frustrating @LillibetteV. The pedi almost denied me his two month shots because he was still waiting on an official healthcare card. Still, good insurance so can't complain. Are you due soon? Time flew by!

jtmh2012

Birth is a qualifying event.  So you should be able to add a fsa deduction then.

I think if you add it now, you would lose the funds from june till december if you had no 2017 expenses.

I never found these accounts worth the hassle.

LillibetteV

12 more weeks to go! It feels long but I think it will fly by because I have so much to do in that time. Also I'd be livid at that doctor!

My calculations have us saving about $1500 between our state and federal taxes by using the FSA account so I'm definitely not passing that up. The problem is that we won't have expenses until the next calendar year following the qualifying event so we might have to just enroll next summer and make all our contributions in the last 6 months of the year. Which would then carry forward to future years since you can't change the payroll deduction mid plan year. 

Xstatic3333

So H is pretty sure that if you start contributing in July 2017, you just have to use all of that money by the end of September 2018, or whenever the grace period is. That would allow you to set up level contributions now that you wouldn't have to change. Still, my H isn't a great details guy and your situation is unique enough that I'd definitely run it by the GIC to be sure. 

For my future reference, are they pretty willing to speak with you directly or do you need to make your H call? 

LillibetteV

Thanks! I'll let you know if they'll talk with me. I sure hope so - this kind of stuff is not my husband's strong suit and I end up nagging him to nag them hahaha. At least that's what happened with the health insurance lol. 

Xstatic3333

Same here! Good luck!

mmabe

Our plan runs from 7/1 - 6/30.  I can spread out by contributions for 12 months and claim the expenses at any point during the 7/1-6/30 period.  So, I can claim expenses only during 2017 even though I contributed in 2016.  I suppose there is a chance that our HR department is not following this properly, but this is how it operates here.

I don't find the accounts to be a hassle at all when you know you'll have childcare expenses.  They have been a great way for us to reduce our tax liability.

blondie42107

My former employer offered this and we used it.  Ours ran from Jan 1 - Dec 31.  I really wish they would update the numbers but it is what it is.  It didn't take long to use it up.  I submitted receipts every two weeks to match my payroll.  I had several coworkers that didn't submit receipts until Nov and then used the money during the holidays.