Expanded DCSFA contribution limit - spread across 2 jobs?

[Lucky Recardito]

2021 DCFSA limit is now $10,500 rather than $5,000. But it relies on an employer actually changing the limit on one's DCFSA plan.

My current employer did not opt to change this limit -- still $5K for me. I've been contributing to it on the assumption that I will max it out by year's end. But I'm changing jobs next month; new employer offers a DCFSA but also kept the $5K limit.

Any reason I can't enroll in the new company's DCFSA and max it out all the way to $5K in the remaining months of the year? I'd have contributed to two different DCFSA plans, within the bounds of each, and my total contribution for the year would be under the overall IRS cap.

We will end the year with $30K+ in childcare costs, so plenty of allowable expenses in any case.

Eh?

[bryan995]

Following.  I read a post on exactly this either on reddit or bogleheads.  It seems to be quite common and the acceptable path forward.  But need to read a bit more.

Can't do much now without having a chance to change enrollments.  Hoping we can do this for 2022.  $35k/year spending in daycare needs all the help it can get.

[MDM]

The Dependent Care Credit rules also changed.  Have you checked whether it would be the DCFSA or the credit that would be better for you?

[Lucky Recardito]

Yep. DCFSA wins for us.

[Lucky Recardito]

@bryan995 -- any chance you have a link to the bogleheads or reddit thread(s) you saw?

[Lucky Recardito]

FWIW, with random Googling getting me nowhere, I'm looking at the actual text  --

§129. Dependent care assistance programs
http://uscode.house.gov/view.xhtml?req=(title:26%20section:129%20edition:prelim)

(a) Exclusion
(1) In general
Gross income of an employee does not include amounts paid or incurred by the employer for dependent care assistance provided to such employee if the assistance is furnished pursuant to a program which is described in subsection (d).

(2) Limitation of exclusion
(A) In general
The amount which may be excluded under paragraph (1) for dependent care assistance with respect to dependent care services provided during a taxable year shall not exceed $5,000 ($2,500 in the case of a separate return by a married individual).

(B) Year of inclusion
The amount of any excess under subparagraph (A) shall be included in gross income in the taxable year in which the dependent care services were provided (even if payment of dependent care assistance for such services occurs in a subsequent taxable year).

(C) Marital status
For purposes of this paragraph, marital status shall be determined under the rules of paragraphs (3) and (4) of section 21(e).

(D) Special rule for 2021
In the case of any taxable year beginning after December 31, 2020, and before January 1, 2022, subparagraph (A) shall be applied by substituting "$10,500 (half such dollar amount" for "$5,000 ($2,500".

And then the 2021 bill echoes the change that [D] describes:

https://www.congress.gov/bill/117th-congress/house-bill/1319/text#toc-HA9C70363AC4A471EBEB0D33793F04FBC

(a) In General.—Section 129(a)(2) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:


“(D) SPECIAL RULE FOR 2021.—In the case of any taxable year beginning after December 31, 2020, and before January 1, 2022, subparagraph (A) shall be applied by substituting ‘$10,500 (half such dollar amount’ for ‘$5,000 ($2,500’.”.

Because (1) and (2) in §129 (the original rule) refer to an exclusion from my gross income, and not to a specific employer-sponsored plan, then I think my rationale makes sense, and that I probably can contribute to two different plans as long as I stay under the overall limit.

[bryan995]

Found this, which is related, but perhaps even another strategy?  Will do some digging and report back.

https://www.bogleheads.org/forum/viewtopic.php?t=342765

[Lucky Recardito]

Thank you, @bryan995 -- that's a useful thread.

Part of the thread is weighing DCFSA usage vs. the Childcare Tax Credit, as MDM points out. That has been discussed here before, and I'm pretty confident that with an AGI of ~$190K, my family is confidently in the "DCFSA is better for us" camp.

There's also some discussion on that thread about the situation I'm looking at, which is using 2 different employer plans up to individual plan limits, but under the overall IRS limit -- and while there's no clear answer, I do at least see someone interpreting the same way I am, which is heartening...