Dependent Care FSA in TurboTax question

[jamesbond007]

I contributed to Dep Care FSA in 2021 and the amount shows on Box 10 on my W2. I contributed $700. My dep care expenses were $700. However, since the deductions are usually done every paycheck, I had to wait till January 2022 to claim the full amount. In January, I submitted a claim and was reimbursed $700.


Fast forward to now, how do I enter this info in TurboTax? It asked me whether my employer provided on-site care. The answer is no. Then it asked me how much of it was left at the end of the year. If I enter $700 (since I filed claim in January 2022), my tax liability is lower. If I enter $0, then my tax liability is higher. Wat's going on here. What should I enter?

[secondcor521]

I'm not familiar with TurboTax, but it seems like it's trying (unartfully) to fill out Form 2441 for you.  I say inartfully because it sounds like it's trying to figure out how much you spent out of the DCFSA in 2021 by working backwards from the 2021-ending balance (and whatever you told it on your 2020 return).

Personally I'd probably answer $0 (even though technically an untruthful answer to TT's question) and then generate the Form 2441 and see if the answers on that form are accurate and truthful.

I think the reason for the effect you are noticing is that the $700, if unused, gets added back into your AGI and thereby increases your tax liability.  But the way you describe it seems backwards to me from what should happen, so either you've got it backwards or there's something else going on that I don't understand.  Or perhaps the question is asking you not how much was *left* in the DCFSA but how much you *spent* from the DCFSA.

[EvenSteven]

I'm not familiar with TurboTax, but it seems like it's trying (unartfully) to fill out Form 2441 for you.  I say inartfully because it sounds like it's trying to figure out how much you spent out of the DCFSA in 2021 by working backwards from the 2021-ending balance (and whatever you told it on your 2020 return).

Personally I'd probably answer $0 (even though technically an untruthful answer to TT's question) and then generate the Form 2441 and see if the answers on that form are accurate and truthful.

I think the reason for the effect you are noticing is that the $700, if unused, gets added back into your AGI and thereby increases your tax liability.  But the way you describe it seems backwards to me from what should happen, so either you've got it backwards or there's something else going on that I don't understand.  Or perhaps the question is asking you not how much was *left* in the DCFSA but how much you *spent* from the DCFSA.

When they check to see if 2441 is filled out correctly by turbo tax, in this case, because all dependent care expenses were paid by a dcFSA, the amount of dependent care tax credit should be zero, right? And that should be reflected on form 2441?

[jamesbond007]

Good point about checking 2441. I will go to forms view and check.

[secondcor521]

I'm not familiar with TurboTax, but it seems like it's trying (unartfully) to fill out Form 2441 for you.  I say inartfully because it sounds like it's trying to figure out how much you spent out of the DCFSA in 2021 by working backwards from the 2021-ending balance (and whatever you told it on your 2020 return).

Personally I'd probably answer $0 (even though technically an untruthful answer to TT's question) and then generate the Form 2441 and see if the answers on that form are accurate and truthful.

I think the reason for the effect you are noticing is that the $700, if unused, gets added back into your AGI and thereby increases your tax liability.  But the way you describe it seems backwards to me from what should happen, so either you've got it backwards or there's something else going on that I don't understand.  Or perhaps the question is asking you not how much was *left* in the DCFSA but how much you *spent* from the DCFSA.

When they check to see if 2441 is filled out correctly by turbo tax, in this case, because all dependent care expenses were paid by a dcFSA, the amount of dependent care tax credit should be zero, right? And that should be reflected on form 2441?

I don't know a great deal about DCFSAs and 2441s, but my understanding is that the amount of payroll deductions reflected in the box 10 amount is also subtracted from the box 1 wages.  So the employee is provisionally given the tax benefit.  If the amount deferred into the DCFSA is not actually spent on dependent care, then whatever wasn't spent is supposed to be added back into box 1 wages (and thus taxed).

I am also not sure on the relationship between the DCFSA and the dependent care tax credit except that they are interrelated (see line 12 of Form 2441) and that there were changes made to the tax law in this area recently.