can each parent use a dependent care FSA?

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mookie
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can each parent use a dependent care FSA?

Post by mookie »

I'm in the 24% tax bracket, married filing jointly. We spend about $20,000 each year on summer camp and daycare for 3 children. In 2021 and prior years, I used the dependent care FSA through my employer to the $5000 maximum. In 2022, my wife will also have access to a dependent care FSA with a $5000 maximum.
1. For 2022, can we each enroll in our employer's plan, $5000 each?
2. I'll rely on Turbotax to take me through it when it comes time, but I'm wondering if we will be eligible for the Dependent Care Tax Credit in 2021 (where I've contributed $5000 to a dependent care FSA) or 2022 (where we're contributing $10,000)? My understanding is that we will be, with an adjustment made based on our AGI. If I recall correctly, in 2020 and prior years, I was eligible for an additional $1000 deduction for my dependent care expenses above the $5000 that I contributed to the FSA.
jbuzolich
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Re: can each parent use a dependent care FSA?

Post by jbuzolich »

My understanding is that you can only utilize up to the $5000 Max in total as a pretax deduction into an FSA or combo of FSA accounts regardless of what your family has access to. Two jobs with FSA access does not allow access to $10k to direct into FSA.
Silversides
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Re: can each parent use a dependent care FSA?

Post by Silversides »

For #1, it’s unlikely that you will be able to contribute beyond the $5k max per household unless one of you are among the few with an employer that raised the limit to $10k. Most did not to stay within the non-discrimination test bounds.

https://www.cnbc.com/amp/2021/10/06/fsa ... know-.html
Wabbit
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Re: can each parent use a dependent care FSA?

Post by Wabbit »

1. No, a married filing jointly couple are limited to a total of $5000 together for 2022. That is my understanding, corroborated by several websites but I don't have an actual IRS link handy. That limit had been increased for 2021 partway through the year, but you would have had to increase it with your employer at that time I think.

2. Yes, since you have more than 1 child you should be able to get some amount for the Dependent Care Tax Credit. (the calculations are different for only 1 child vs. more than 1 child.) I think the allowed expenses for 2021 also increased to $16,000 for 2 kids, so if you missed increasing the DCFSA for 2021 this will still give you something. Turbotax will tell you better than I can, but I think the calculation is roughly (allowed expense - DCFSA) * (fraction based on income)

Disclaimer - it is always better to go through it with Turbotax, taxes are complicated and specific to your situation!
dukeblue219
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Re: can each parent use a dependent care FSA?

Post by dukeblue219 »

Probably worth pointing out that you probably CAN both enroll and deduct $5k but it would not be legal - don't expect your employer to know about the other employer and keep you out of trouble.
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mookie
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Re: can each parent use a dependent care FSA?

Post by mookie »

Wabbit wrote: Fri Dec 03, 2021 4:03 pm I think the allowed expenses for 2021 also increased to $16,000 for 2 kids, so if you missed increasing the DCFSA for 2021 this will still give you something.
Were employers required to offer an increased DCFSA in 2021? Because mine offered the original $5000 and then I don't think they increased it later in the year.
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mookie
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Re: can each parent use a dependent care FSA?

Post by mookie »

jbuzolich wrote: Fri Dec 03, 2021 3:51 pm My understanding is that you can only utilize up to the $5000 Max in total as a pretax deduction into an FSA or combo of FSA accounts regardless of what your family has access to. Two jobs with FSA access does not allow access to $10k to direct into FSA.
This article says otherwise, unless I'm misunderstanding it.

https://www.whitecoatinvestor.com/dcfsa ... x-credits/
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HueyLD
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Re: can each parent use a dependent care FSA?

Post by HueyLD »

On March 11, 2021, The American Rescue Plan Act of 2021 (ARPA) was signed into law by President Biden. ARPA allows employers to increase the annual limit on contributions to dependent care FSAs up to $10,500 for the 2021 plan year only. And the increase is optional for employers.
joe3411
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Re: can each parent use a dependent care FSA?

Post by joe3411 »

You are limited to either the $10,500 or $5,000 limit in 2021. This is dependent on whether your employer offered the higher $10,500 number. My employer did not - presumably because they expected the limit to return to $5,000 in 2022. The limit is TOTAL between the two spouses and there is no wiggle room here except for the 2021 exception of $10,500 where allowed by your workplace.
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truenyer
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Re: can each parent use a dependent care FSA?

Post by truenyer »

In 2021, the MFJ limit is $10,500. The IRS doesn’t care where the money comes from (which spouse’s employer(s)).

I always do the DCFSA during annual enrollment at $5k. After the law change, employers were not required to increase limits and/or re-open enrollment.

My company opened enrollment but did not allow the higher limit (non discrimination testing failed). My wife’s employer allowed increases, but not new enrollment.

Long story short she was able to enroll mid year due to a change in our day care tuition. So she enrolled at $5,500. So we are ending up the year at a combined $10,500.
GreendaleCC
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Re: can each parent use a dependent care FSA?

Post by GreendaleCC »

mookie wrote: Fri Dec 03, 2021 5:13 pm
jbuzolich wrote: Fri Dec 03, 2021 3:51 pm My understanding is that you can only utilize up to the $5000 Max in total as a pretax deduction into an FSA or combo of FSA accounts regardless of what your family has access to. Two jobs with FSA access does not allow access to $10k to direct into FSA.
This article says otherwise, unless I'm misunderstanding it.

https://www.whitecoatinvestor.com/dcfsa ... x-credits/
You are misunderstanding. The article says:

“Contribution limit is up from $5,000 to $10,500 for 2021 (but not all plans adopted the higher limit).”
Last edited by GreendaleCC on Mon Dec 06, 2021 12:40 am, edited 1 time in total.
GreendaleCC
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Re: can each parent use a dependent care FSA?

Post by GreendaleCC »

truenyer wrote: Mon Dec 06, 2021 12:22 am Long story short she was able to enroll mid year due to a change in our day care tuition.
How was that considered a “qualifying life event”?
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truenyer
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Re: can each parent use a dependent care FSA?

Post by truenyer »

GreendaleCC wrote: Mon Dec 06, 2021 12:36 am
truenyer wrote: Mon Dec 06, 2021 12:22 am Long story short she was able to enroll mid year due to a change in our day care tuition.
How was that considered a “qualifying life event”?
Change in tuition is an eligible event for DCFSAs.
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mookie
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Re: can each parent use a dependent care FSA?

Post by mookie »

truenyer wrote: Mon Dec 06, 2021 12:22 am In 2021, the MFJ limit is $10,500. The IRS doesn’t care where the money comes from (which spouse’s employer(s)).

I always do the DCFSA during annual enrollment at $5k. After the law change, employers were not required to increase limits and/or re-open enrollment.

My company opened enrollment but did not allow the higher limit (non discrimination testing failed). My wife’s employer allowed increases, but not new enrollment.
Why did Congress pass a law that depends on the employer enacting the change in order for the individual to realize the benefit of the law change? It seem like a lot of employers, including me and my wife's, did not enact the change in the plans they offer. Is there a way for us to realize the benefit of the increased DCFSA for 2021 on the back end--when we file taxes?
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truenyer
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Re: can each parent use a dependent care FSA?

Post by truenyer »

Because it still had to pass non discrimination testing. Companies either failed the test or didn’t care to try.

You can’t claim the DCFSA amount retroactively. But you are still eligible for the expanded Dependent Care Credit (not to be confused with the Child Tax Credit).
Last edited by truenyer on Mon Dec 06, 2021 9:10 am, edited 1 time in total.
sureshoe
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Re: can each parent use a dependent care FSA?

Post by sureshoe »

GreendaleCC wrote: Mon Dec 06, 2021 12:30 am
mookie wrote: Fri Dec 03, 2021 5:13 pm
jbuzolich wrote: Fri Dec 03, 2021 3:51 pm My understanding is that you can only utilize up to the $5000 Max in total as a pretax deduction into an FSA or combo of FSA accounts regardless of what your family has access to. Two jobs with FSA access does not allow access to $10k to direct into FSA.
This article says otherwise, unless I'm misunderstanding it.

https://www.whitecoatinvestor.com/dcfsa ... x-credits/
You are misunderstanding. The article says:

“Contribution limit is up from $5,000 to $10,500 for 2021 (but not all plans adopted the higher limit).”
I didn't realize the $10,500 potential increase happened.

Neither our employers implemented it, but now it makes me wonder if 2 spouses both do the $5k in this year, are we able to legally write off the $10k despite the employer not enabling. Too late now.
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truenyer
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Re: can each parent use a dependent care FSA?

Post by truenyer »

sureshoe wrote: Mon Dec 06, 2021 9:09 am
GreendaleCC wrote: Mon Dec 06, 2021 12:30 am
mookie wrote: Fri Dec 03, 2021 5:13 pm
jbuzolich wrote: Fri Dec 03, 2021 3:51 pm My understanding is that you can only utilize up to the $5000 Max in total as a pretax deduction into an FSA or combo of FSA accounts regardless of what your family has access to. Two jobs with FSA access does not allow access to $10k to direct into FSA.
This article says otherwise, unless I'm misunderstanding it.

https://www.whitecoatinvestor.com/dcfsa ... x-credits/
You are misunderstanding. The article says:

“Contribution limit is up from $5,000 to $10,500 for 2021 (but not all plans adopted the higher limit).”
I didn't realize the $10,500 potential increase happened.

Neither our employers implemented it, but now it makes me wonder if 2 spouses both do the $5k in this year, are we able to legally write off the $10k despite the employer not enabling. Too late now.
It’s legal. The IRS doesn’t care how you reach the limit.
PowderDay9
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Re: can each parent use a dependent care FSA?

Post by PowderDay9 »

truenyer wrote: Mon Dec 06, 2021 12:52 am
GreendaleCC wrote: Mon Dec 06, 2021 12:36 am
truenyer wrote: Mon Dec 06, 2021 12:22 am Long story short she was able to enroll mid year due to a change in our day care tuition.
How was that considered a “qualifying life event”?
Change in tuition is an eligible event for DCFSAs.
You're lucky. My wife's employer didn't allow this.

For 2022, I'm choosing to fund $5k in each of our DCFSAs. If the temporary $10.5k doesn't get extended then I'll just deal with it at tax time.
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truenyer
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Re: can each parent use a dependent care FSA?

Post by truenyer »

PowderDay9 wrote: Mon Dec 06, 2021 10:49 am
truenyer wrote: Mon Dec 06, 2021 12:52 am
GreendaleCC wrote: Mon Dec 06, 2021 12:36 am
truenyer wrote: Mon Dec 06, 2021 12:22 am Long story short she was able to enroll mid year due to a change in our day care tuition.
How was that considered a “qualifying life event”?
Change in tuition is an eligible event for DCFSAs.
You're lucky. My wife's employer didn't allow this.

For 2022, I'm choosing to fund $5k in each of our DCFSAs. If the temporary $10.5k doesn't get extended then I'll just deal with it at tax time.
Hmm. The IRS determines eligible events, not employers. This verbiage is definitely buried, but it's there. Oh well.

As for 2022, at this point it was not extended but you have an interesting idea. Looks like there is no penalty for overcontribution, it just switches to regular taxable income.
Topic Author
mookie
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Re: can each parent use a dependent care FSA?

Post by mookie »

truenyer wrote: Mon Dec 06, 2021 11:02 am
PowderDay9 wrote: Mon Dec 06, 2021 10:49 am
For 2022, I'm choosing to fund $5k in each of our DCFSAs. If the temporary $10.5k doesn't get extended then I'll just deal with it at tax time.
Hmm. The IRS determines eligible events, not employers. This verbiage is definitely buried, but it's there. Oh well.

As for 2022, at this point it was not extended but you have an interesting idea. Looks like there is no penalty for overcontribution, it just switches to regular taxable income.
So for 2022, if I contribute $5k in each DCFSA, $10k total, and the temporary $10.5k from 2021 is not extended, will there be a mechanism in Turbotax to help me calculate and pay tax taxes on my overcontribution?
PowderDay9
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Re: can each parent use a dependent care FSA?

Post by PowderDay9 »

truenyer wrote: Mon Dec 06, 2021 11:02 am
PowderDay9 wrote: Mon Dec 06, 2021 10:49 am
truenyer wrote: Mon Dec 06, 2021 12:52 am
GreendaleCC wrote: Mon Dec 06, 2021 12:36 am
truenyer wrote: Mon Dec 06, 2021 12:22 am Long story short she was able to enroll mid year due to a change in our day care tuition.
How was that considered a “qualifying life event”?
Change in tuition is an eligible event for DCFSAs.
You're lucky. My wife's employer didn't allow this.

For 2022, I'm choosing to fund $5k in each of our DCFSAs. If the temporary $10.5k doesn't get extended then I'll just deal with it at tax time.
Hmm. The IRS determines eligible events, not employers. This verbiage is definitely buried, but it's there. Oh well.

As for 2022, at this point it was not extended but you have an interesting idea. Looks like there is no penalty for overcontribution, it just switches to regular taxable income.
It's possible we would have been allowed to make a change if she already had an account open. We asked multiple HR people throughout the year and each time they told us no.

It kind of defeats the purpose when the government changes the rules after the year begins and most employers don't raise the $5k limit due to non-discrimination testing. Now they've incentivizing us to over contribute in case they ever do that again.
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truenyer
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Re: can each parent use a dependent care FSA?

Post by truenyer »

mookie wrote: Mon Dec 06, 2021 7:32 pm
truenyer wrote: Mon Dec 06, 2021 11:02 am
PowderDay9 wrote: Mon Dec 06, 2021 10:49 am
For 2022, I'm choosing to fund $5k in each of our DCFSAs. If the temporary $10.5k doesn't get extended then I'll just deal with it at tax time.
Hmm. The IRS determines eligible events, not employers. This verbiage is definitely buried, but it's there. Oh well.

As for 2022, at this point it was not extended but you have an interesting idea. Looks like there is no penalty for overcontribution, it just switches to regular taxable income.
So for 2022, if I contribute $5k in each DCFSA, $10k total, and the temporary $10.5k from 2021 is not extended, will there be a mechanism in Turbotax to help me calculate and pay tax taxes on my overcontribution?
Just a guess. Your W2 shows the amount in Box 12. When you put it all in TT, it probably shows you have overcontributed and will add the remainder as income. You’ll have to go over the numbers to be sure.

You can even try it this year, tell it you contributed like $15,500.
GreendaleCC
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Re: can each parent use a dependent care FSA?

Post by GreendaleCC »

truenyer wrote: Mon Dec 06, 2021 12:52 am
GreendaleCC wrote: Mon Dec 06, 2021 12:36 am
truenyer wrote: Mon Dec 06, 2021 12:22 am Long story short she was able to enroll mid year due to a change in our day care tuition.
How was that considered a “qualifying life event”?
Change in tuition is an eligible event for DCFSAs.
Thank you!
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mookie
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Re: can each parent use a dependent care FSA?

Post by mookie »

mookie wrote: Mon Dec 06, 2021 7:32 pm
truenyer wrote: Mon Dec 06, 2021 11:02 am
PowderDay9 wrote: Mon Dec 06, 2021 10:49 am
For 2022, I'm choosing to fund $5k in each of our DCFSAs. If the temporary $10.5k doesn't get extended then I'll just deal with it at tax time.
Hmm. The IRS determines eligible events, not employers. This verbiage is definitely buried, but it's there. Oh well.

As for 2022, at this point it was not extended but you have an interesting idea. Looks like there is no penalty for overcontribution, it just switches to regular taxable income.
So for 2022, if I contribute $5k in each DCFSA, $10k total, and the temporary $10.5k from 2021 is not extended, will there be a mechanism in Turbotax to help me calculate and pay tax taxes on my overcontribution?
Does anyone know if Congress is considering extending to 2022 the $10.5 temporary DCFSA increase? If they do, and I have not opted in to the second DCFSA because that's not currently allowed, will the employer let me contribute mid-year? I'd like to be able to take advantage of the potential FSA increase, but don't want to run afoul of the rules, or leave myself with a headache in completing my taxes if the increase isn't extended.
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truenyer
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Re: can each parent use a dependent care FSA?

Post by truenyer »

mookie wrote: Tue Dec 07, 2021 9:50 am
mookie wrote: Mon Dec 06, 2021 7:32 pm
truenyer wrote: Mon Dec 06, 2021 11:02 am
PowderDay9 wrote: Mon Dec 06, 2021 10:49 am
For 2022, I'm choosing to fund $5k in each of our DCFSAs. If the temporary $10.5k doesn't get extended then I'll just deal with it at tax time.
Hmm. The IRS determines eligible events, not employers. This verbiage is definitely buried, but it's there. Oh well.

As for 2022, at this point it was not extended but you have an interesting idea. Looks like there is no penalty for overcontribution, it just switches to regular taxable income.
So for 2022, if I contribute $5k in each DCFSA, $10k total, and the temporary $10.5k from 2021 is not extended, will there be a mechanism in Turbotax to help me calculate and pay tax taxes on my overcontribution?
Does anyone know if Congress is considering extending to 2022 the $10.5 temporary DCFSA increase? If they do, and I have not opted in to the second DCFSA because that's not currently allowed, will the employer let me contribute mid-year? I'd like to be able to take advantage of the potential FSA increase, but don't want to run afoul of the rules, or leave myself with a headache in completing my taxes if the increase isn't extended.
I have not read about it being considered at all.

If the amount changes mid-year, the same criteria as discussed above would apply (employers will decide individually to allow new enrollments AND/OR contribution increases).
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mookie
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Re: can each parent use a dependent care FSA?

Post by mookie »

truenyer wrote: Tue Dec 07, 2021 11:24 am
mookie wrote: Tue Dec 07, 2021 9:50 am
mookie wrote: Mon Dec 06, 2021 7:32 pm
truenyer wrote: Mon Dec 06, 2021 11:02 am
PowderDay9 wrote: Mon Dec 06, 2021 10:49 am
For 2022, I'm choosing to fund $5k in each of our DCFSAs. If the temporary $10.5k doesn't get extended then I'll just deal with it at tax time.
Hmm. The IRS determines eligible events, not employers. This verbiage is definitely buried, but it's there. Oh well.

As for 2022, at this point it was not extended but you have an interesting idea. Looks like there is no penalty for overcontribution, it just switches to regular taxable income.
So for 2022, if I contribute $5k in each DCFSA, $10k total, and the temporary $10.5k from 2021 is not extended, will there be a mechanism in Turbotax to help me calculate and pay tax taxes on my overcontribution?
Does anyone know if Congress is considering extending to 2022 the $10.5 temporary DCFSA increase? If they do, and I have not opted in to the second DCFSA because that's not currently allowed, will the employer let me contribute mid-year? I'd like to be able to take advantage of the potential FSA increase, but don't want to run afoul of the rules, or leave myself with a headache in completing my taxes if the increase isn't extended.
I have not read about it being considered at all.

If the amount changes mid-year, the same criteria as discussed above would apply (employers will decide individually to allow new enrollments AND/OR contribution increases).
I went back to last year's return in TurboTax and entered in $5000 into Box 10 of my wife's W2, as if she had contributed that amount to her DCFSA, and it calculated the increased taxes I had to pay for it. So it looks like entering and paying for an excess DCFSA contribution in TurboTax is straightforward.

I wonder if many people will be doing this--overcontributing to the DCFSA hoping that the increase will be extended, in order to not be in this year's situation of undercontributing?
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truenyer
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Re: can each parent use a dependent care FSA?

Post by truenyer »

mookie wrote: Tue Dec 07, 2021 12:14 pm
truenyer wrote: Tue Dec 07, 2021 11:24 am
mookie wrote: Tue Dec 07, 2021 9:50 am
mookie wrote: Mon Dec 06, 2021 7:32 pm
truenyer wrote: Mon Dec 06, 2021 11:02 am

Hmm. The IRS determines eligible events, not employers. This verbiage is definitely buried, but it's there. Oh well.

As for 2022, at this point it was not extended but you have an interesting idea. Looks like there is no penalty for overcontribution, it just switches to regular taxable income.
So for 2022, if I contribute $5k in each DCFSA, $10k total, and the temporary $10.5k from 2021 is not extended, will there be a mechanism in Turbotax to help me calculate and pay tax taxes on my overcontribution?
Does anyone know if Congress is considering extending to 2022 the $10.5 temporary DCFSA increase? If they do, and I have not opted in to the second DCFSA because that's not currently allowed, will the employer let me contribute mid-year? I'd like to be able to take advantage of the potential FSA increase, but don't want to run afoul of the rules, or leave myself with a headache in completing my taxes if the increase isn't extended.
I have not read about it being considered at all.

If the amount changes mid-year, the same criteria as discussed above would apply (employers will decide individually to allow new enrollments AND/OR contribution increases).
I went back to last year's return in TurboTax and entered in $5000 into Box 10 of my wife's W2, as if she had contributed that amount to her DCFSA, and it calculated the increased taxes I had to pay for it. So it looks like entering and paying for an excess DCFSA contribution in TurboTax is straightforward.

I wonder if many people will be doing this--overcontributing to the DCFSA hoping that the increase will be extended, in order to not be in this year's situation of undercontributing?
That's good to hear. It's not a bad idea, just be careful of the underpayment penalty calculation (if your withholding is close to the formula limit). You don't want to be stuck with a penalty because of the extra $5k that wasn't taxed during the year.

Also, now that we know that change in tuition is an eligible event per the IRS, that should open the door for a lot of people to enroll mid-year where their employers otherwise wouldn't allow that if the law changed. I would imagine most day cares and any other programs change their tuition at some point during the year. As an aside, one can argue that the "new" enrollment due to a tuition change should be limited in the amount to the change in tuition only. But the IRS certainly does not go into that detail...
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