Dependent Care FSA Question re: W2

[Anonymous]

I have an extension on my federal taxes because for the first time this year, my HR put my dependent care FSA in Box 10 of my W2. Previously the FSA wasn't listed on my W2 at all. I completed my taxes with TurboTax, as usual, and my Form 2441 matches my Box 10 amount exactly. Despite that, I'm still being charged almost $1k in federal taxes for the full amount of my FSA. The TurboTax pro said it was a mistake on my W2 and to contact my HR. My HR couldn't explain it, but said everyone's W2 has it listed in Box 10 this year. They are waiting for me to email them about it and explain why it's wrong and what correction should be made on my W2.

I'm not finding a clear answer in the IRS guidance because it seems like Box 10 is used for EMPLOYER funded dependent care HSAs, but it's not clear how EMPLOYEE funded HSAs should be documented on my W2. If the answer is, "it just shouldn't be," that will be a hard case to make with my HR and I would need very explicit IRS language to support that. If it's a mistake with the TurboTax software, I'll just file on paper this year and hope the problem fixes itself by next year. It feels unlikely it's a TurboTax issue, since it presumably would have come up and been fixed during tax season.

How should an employee funded (employer takes out pre-tax dollars from my paycheck, entire fund should be tax exempt as long as it's used for properly reimbursable expenses) dependent care FSA be listed in a W2? Does anyone know of the tax code and/or guidance for this specific scenario? It feels ridiculous that this is an issue, since it's such a common type of FSA. But it's also almost $1k in taxes that I do NOT want to pay that unnecessarily.

[Anonymous]

I am a federal employee so my W-2 is probably done correctly and in box 10 it says $5K.

My guess is you made an error on Form 2441.

[Anonymous]

Anonymous wrote:I am a federal employee so my W-2 is probably done correctly and in box 10 it says $5K.

My guess is you made an error on Form 2441.

Thanks for replying. The TurboTax pro double checked the Form 2441 and the amount is equal to the amount in Box 10. When you do yours, your Box 10 and your Form 2441 are both $5k and you do not owe taxes on the FSA amount?

[Anonymous]

Anonymous wrote:

Anonymous wrote:I am a federal employee so my W-2 is probably done correctly and in box 10 it says $5K.

My guess is you made an error on Form 2441.

Thanks for replying. The TurboTax pro double checked the Form 2441 and the amount is equal to the amount in Box 10. When you do yours, your Box 10 and your Form 2441 are both $5k and you do not owe taxes on the FSA amount?

Yes, correct. One issue that might be happening is that TT is thinking you qualify for the dependant care tax credit and then that amount is being offset by the $5K you already received tax free thus creating the appearance that you are being taxed on that amount.

[Anonymous]

Also a fed and my box 10 also has my $5K in dependent care FSA.

Just looked at my Form 2441 and I'm not sure what you mean when you say that the amount on the 2441 is the same as box 10. Where on Form 2441?

If you have an FSA you can't also claim the full amount of the dependent care credit. You have to subtract the amount of the dependent care credit first.
So if you only have 1 kid, you can get a credit based on $3000. But if you put $5000 in an FSA, then there is no dependent care credit available to you.

If you have 2 kids, you can base the credit on $6000. If you have an FSA, you subtract $5000 from the $6000 and get a credit based on the extra $1000. So I get a $200 credit on my tax return. I'm not paying taxes on the $5000, I just can't get a double tax break for it.

[Anonymous]

Anonymous wrote:Also a fed and my box 10 also has my $5K in dependent care FSA.

Just looked at my Form 2441 and I'm not sure what you mean when you say that the amount on the 2441 is the same as box 10. Where on Form 2441?

If you have an FSA you can't also claim the full amount of the dependent care credit. You have to subtract the amount of the FSA first.
So if you only have 1 kid, you can get a credit based on $3000. But if you put $5000 in an FSA, then there is no dependent care credit available to you because the FSA amount is more than $3000.

If you have 2 kids, you can base the credit on $6000. If you have an FSA, you subtract $5000 from the $6000 and get a credit based on the extra $1000. So I get a $200 credit on my tax return. I'm not paying taxes on the $5000, I just can't get a double tax break for it.

Sorry--typo. Corrected in bold above.

[Anonymous]

Thanks all. I think that is all done correctly, but the TurboTax interface could be making a mistake less obvious. I’ll double check in the morning.