As the title states, my spouse and I both maxed out our DCFSA contributions at $5k each and I now realize that the limit is $5k per household. Is it possible to get one of our contributions "transferred back" to taxable income or is that money just fully gone?
My spouse and I misunderstood the household limit on the Dependent Care FSA and we both selected the max. Is that money gone?
byu/Gold_Telephone_7192 intax
Posted by Gold_Telephone_7192
5 Comments
when you file your returns, the amount that you deferred above the allowable limit will be added back to taxable compensation
No definitely use the money!!!!
The DCFSA reduces your taxable income. The max per household is $5k. Your W-2s will reflect $5k each. When you fill out your returns, as the software goes through all of the forms, it will show that you had too much deducted from taxable income (by $5k) and it will add that extra $5k back to your taxable income.
The only “issue” is that you guys now will be under-withheld on $5k of income (and assuming that income is in the 20% tax bracket, that’s $1000 of tax). You can try and proactively fix this by updating one of your W-4s to withhold a total of $1k extra over the remaining paychecks for the year, or you can just hope for the best and figure it out with your return (personally I’d just figure it out with my return).
My cpa told me that you could call the provider to adjust the withholding amount before tax return filing time to avoid getting taxed on the excess contribution. I did not pursue as in our case it was a 25 buck additional tax. Also it was for HSA and not dcfsa, so not sure if what I said above applicable to your scenario
you will have to pay tax on it but it isn’t gone.
As I recall, the possible unintended consequence of this is that you potentially save up to $310 in Social Security Tax since that will not get added back when preparing the tax return.
Another way of looking at this is that you will reduce your social security earnings record by the $5,000 contributed.