Reply to Discrimination test for dependent care FSA?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]It is unfortunate but normal audit that should happen ever year. It happens if the % of lower income folks contributiing is significantly less than high income folks contributing. The plan is discriminating in favor of highly comped folks. The same thing can happen with 401ks, but 401ks have the option of a safe harbor so you don't hear about it as much.

Your husband will most likely be affected by this every year going forward. If you make less than 115k and have access to a dependent care FSA, you should contribute for the family.[/quote]

Happened to us in the 401k situation. Every year there is an audit and we get told how much can be put in. [/quote]

That really stinks. I think the law is ridiculous. There is no safety net for most of us. We are on our own for retirement and should be always allowed to contribute the max.[/quote]

The part that gets me about this is the uneven application; Company A has more lower income people using the program, so Mr 115K can get the tax break; Company B has fewer lower income people using the program so no tax break.  It just seems so odd to restrict/limit a federal tax break based on the happenings at individual companies.[/quote]

It's to incentivize Company B to encourage its lower level employees to take advantage of the benefit. They are "on their own for retirement," too.[/quote]

It's a short sighted approach because it doesn't uniformly address all workers. Truly helping lower income folks needs ti be addressed across the board when yiu do yoyr taxes. Not at an individual company level.

The salary threshold is also set across the US. It was meant to target Execs. Perhaps in Iowa an Executive makes 117k. But in high cost of living areas, a 32yo with kids makes 117k. The lower salaried folks you mention are very often the youngest workers without kids. There wouldn't be enough volume to join to balance the test to begin with.
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