Dealing with surprise restriction on dependent care account

I recently started a new job that offered a benefit I have not had before: flexible spending accounts for dependent care. The brochure said it could be used for babysitters and summer day camps, so I signed up to have $1,000 of my income diverted to the account, tax free. I figured we would use that money going out twice a month plus summer camp. Now the benefit year has started and I've gotten the complete account agreement. I noticed a restriction that I hadn't seen before: the dependent care is provided so either my wife or I can work, or so my wife can go to school full-time, or she is incapable of self care. My wife does not work (she would disagree but you know what I mean) and takes only one college class at a time (i.e. far from full time). Neither of us would be working on the evenings we would have a babysitter. Nor would she be working when the children are at summer day camp. Although the time for changing benefits is past, is the company allowed to cancel a flexible spending account? If there's a chance, I'll ask for it, but if there's no chance I don't want to rock the boat. If we're stuck with the account, then how can we salvage the money we are putting into it? I have a documented prior interest in screenwriting, so could a movie date be considered work-related? If either one of us writes restaurant reviews and tries to sell them (successful or not), could a dinner date be considered work-related? Other ideas? Thanks, Ed

> > > > > > >
Reply to
Ed Roberts Jr
Loading thread data ...

I'm sure the company informed you as to the restrictions and conditions before you signed up. ONLY if you can prove they didn't, might you have a case for voiding your signup. But once in, you're stuck. And the only way to use those dollars is by actual child care expenses as allowed by tax law. ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

Here's my answer, which I believe doesn't cross any ethical line. Your employer won't ask for 'proof' your wife works to provide the benefit. You submit the reimbursement requests and take the reimbursement. When tax time comes, you are

100% forthright, and pay the tax on the $1000, which had come out pre-tax. In the end, you've paid your tax and not gotten any benefit, just gotten your own money back. I had a year where my wife and I got our signals crossed, I took $5000, and she took $2500 out of her checks. When filing taxes for that year, I had to pay the tax on $2500 worth as the family limit was $5000. JOE
Reply to
joetaxpayer

Actually you come out ahead if this is what you do.

That's because when you file your tax return, you will be adding back the money in the child care reimbursement account to your wages on Form 1040 Line 7, and thus paying income tax on that money. But that money has escaped FICA & Medicare tax and all you are doing is paying income tax on it. So you come out ahead by the FICA/Medicare tax. __ Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH

Reply to
Arthur Kamlet

I 'speculate' the babysitter need not be for work-related activities. Also if you wife was a full-time student, she would not be in school during summer camp. Someone who understands the regs on this needs to comment on this before you follow my 'speculation'.

One year I found out after the fact that I health care plan in which I enrolled was an HMO. The devil invented HMO's and I had been in one years before. Never Again! I flipped out and went to Human Resources with all of the paperwork in hand and they let me change. So you will be in a position of strength if you can shoe that the upfront information you received was not clear as to what you were getting.

Keep in mind that your employer gets to pocket any funds that go unspent, but is at risk when people resign and have received more from the plan than they have paid into it.

I believe the worse case scenario you are facing is having to pay the taxes on the funds because the limit on your use of these funds is the lesser of your wife's income or the $1000 unless she is a full-time student. Thus, I 'speculate' that if your wife took a part-time job or had self-employment income, you'd be ok. When you suggest she gets a part-time job, do not mention my name.

See above about possibly not needing to be work-related. Writing restaurant reviews is a modestly profitable endeavor especially if, after you have published a few, you work out prearrangements to be reimbursed bill, but not tip or taxes. It is not as competitive an endeavor as it may seem depending upon where you live. Contact small local papers to see if they are interested and find material on writing reviews and getting reimbursements.

Dick

P.S.: 'Speculate' is the same as 'Guessing'. 'Speculate' just sounds more professional.

Reply to
Dick Adams

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.