Dependent care FSA

[Anonymous]

Does anyone use an FSA account (pre-tax) for dependent care? My employer offers this option and it seems like a good deal except that it also seems like you are essentially paying for day care out of pocket, while also putting that $$ into an FSA that you then will have to reimbursed for, so in the end it evens out that you pay for care services pre-tax but in the day to day it seems like you have to budget that daycare $ will come basically two times a month "upfront" payment to provider and then in your FSA account before you get it reimbursed into your regular bank account.

Does this make any sense? My head is spinning a little with all the eminent changes!

[Anonymous]

Not that complicated. It basically means that you get to pay for some daycare with pre-tax dollars, so you save in taxes. You can frontload your FSA account so that you have a larger amount withheld from your paycheck and can get the full amount reimbursed sooner. And I only ever submitted a single claim for payment.

[Anonymous]

I understand what you are saying but it the deduction is pretax so you actually end up saving money. Wo do the full 5k. Based on the calculator they had on line, we end up with up about 700 in savings.

[Anonymous]

Yes, but you are saving because the money that goes into the FSA is pre-tax. And you can submit for reimbursement right away.

For example, say you pay $1000 in childcare in January. You can submit for that on Feb 1. You'll probably only have about $400 in your FSA at that point, so you'll get all of that money back right away. When your Feb 15 paycheck goes in with another $200 deposit to the FSA, the FSA will turn around and ship that money right back to you.

At least that's how mine works. YMMV.

Yes, you're "double paying" while you're waiting for the reimbursement, but the tax savings are worth it. GL!

[Anonymous]

Yeah, but you don't have to pay tax on it, so it's still worthwhile.

It actually works really well. How it works is you submit a claim, and then it pays you pack all you have paid into it, every week. For example, your daycare is $1500/month. If you put in the max, $5000 for the year, it takes out $208/paycheck (24 times a year).

Then, in Jan, after you've paid your Jan tuition, you submit a claim, and every week, you will get back the $208 you just paid. Then do the same in Feb, Mar and Apr, and then you're all done.

[Anonymous]

Turbotax told me that my DH and I make too much money to qualify for the dependent care deduction. Does this sound right?

[Anonymous]

Anonymous wrote:Yes, but you are saving because the money that goes into the FSA is pre-tax. And you can submit for reimbursement right away.

For example, say you pay $1000 in childcare in January. You can submit for that on Feb 1. You'll probably only have about $400 in your FSA at that point, so you'll get all of that money back right away. When your Feb 15 paycheck goes in with another $200 deposit to the FSA, the FSA will turn around and ship that money right back to you.

At least that's how mine works. YMMV.

Yes, you're "double paying" while you're waiting for the reimbursement, but the tax savings are worth it. GL!

Yes, that's what I thought I just wasn't sure. Thanks. I'm not a contacts wearer, never had a child, etc. So I've never used an FSA until now somehow!

[Anonymous]

I like to wait until the end of the year to submit my reimbursement claim . . . and then I immediately sock the 5K into my daughter's 529 account. Forced savings!

[Anonymous]

Anonymous wrote:Turbotax told me that my DH and I make too much money to qualify for the dependent care deduction. Does this sound right?

I wasn't aware there was an income limit. It's the same as a medical FSA.

[Anonymous]

Anonymous wrote:I like to wait until the end of the year to submit my reimbursement claim . . . and then I immediately sock the 5K into my daughter's 529 account. Forced savings!

+1

[Anonymous]

I accelerate the withdrawals and submit the full $5K claim in April. I set it up so the disbursement is directly deposited into our savings account.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I like to wait until the end of the year to submit my reimbursement claim . . . and then I immediately sock the 5K into my daughter's 529 account. Forced savings!

+1

This is what I always did, but on June 30 and Dec 31.

[Anonymous]

Anonymous wrote:I like to wait until the end of the year to submit my reimbursement claim . . . and then I immediately sock the 5K into my daughter's 529 account. Forced savings!

That's brilliant! I end up using mine to pay for summer camp.

[Anonymous]

Yes, that is essentially what happens. But the impact on your week-to-week budget is much smaller, because you are having the $5,000 taken out over the course of the entire year. So $192 taken out pre-tax for a bi-weekly paycheck, but when you apply for the reimbursement, you will get the full amount. So you would be "out" the money for the first paycheck, but after that you can apply for reimbursement right away.

[Anonymous]

16:02 - The dependent care deduction is not the same thing as a dependent care FSA. You can earn too much to qualify for the deduction but I don't think there are any income limits on the FSA (if there were, we shoudln't be able to use it but no one -- including our tax accountant -- has ever blinkied about it).