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Posted by Rich Carreiro on September 26, 2007, 2:29 pm
How exactly do dependent care FSAs work with respect
to the timing between when contributions are made
and when you can get remibursements? In particular,
can you get reimbursed before you've made enough contributions
to cover the reimbursements?
For example, if you had a *health care* FSA and made a $5000
election for the year, you could incur $5000 of reimburseable
expenses on Jan 2 and get reimbursed for all $5000 within days,
even though you haven't contributed a dime yet for the year.
Do *dependent care* FSAs work like that, or can you only
get reimbursed for the contributions you've made to date?
--
Rich Carreiro rlc-news@rlcarr.com
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Posted by joetaxpayer on September 26, 2007, 3:35 pm
Rich Carreiro wrote:
> How exactly do dependent care FSAs work with respect
> to the timing between when contributions are made
> and when you can get remibursements? In particular,
> can you get reimbursed before you've made enough contributions
> to cover the reimbursements?
>
> For example, if you had a *health care* FSA and made a $5000
> election for the year, you could incur $5000 of reimburseable
> expenses on Jan 2 and get reimbursed for all $5000 within days,
> even though you haven't contributed a dime yet for the year.
>
> Do *dependent care* FSAs work like that, or can you only
> get reimbursed for the contributions you've made to date?
I have both. The health care (HSA) reimburses in full. You spend $5000
in January, you get it all back. If you leave or are let go, you owe
nothing.
Dependent Care (DCA) does not reimburse in advance of deposits. If
childcare cost $5000 for january, you get checks each week for $100,
soon after the regular paycheck.
Both accounts are "use it or lose it", so I'm sure there's some
forfeited money that goes back to the plan. One is allowed to change
deductions based on a short menu of life events, regardless of amounts
already reimbursed, so you have a baby in January, and somehow burn
through the money, but the baby allows you to stop withdrawals. Sneaky,
but this is how the plans are written. A small company may just refuse
that change request. My child was born in October, and the administrator
dragged her feet so deductions only stopped for the month of December.
She admitted I was the only employee in a company of 100,000 to pull
this stunt, but they had tens of thousands in forfeited money each year.
JOE
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Posted by Mark Bole on September 27, 2007, 5:09 am
joetaxpayer wrote:
> Rich Carreiro wrote:
>
>> How exactly do dependent care FSAs work with respect
>> to the timing between when contributions are made
>> and when you can get remibursements? In particular,
>> can you get reimbursed before you've made enough contributions
>> to cover the reimbursements?
[...]
>
> Dependent Care (DCA) does not reimburse in advance of deposits. If
> childcare cost $5000 for january, you get checks each week for $100,
> soon after the regular paycheck.
While my own experience with health care FSA mirrors what was posted so
far, is it safe to assume that ALL cafeteria (section 125) plans operate
this way? In other words, is it written into tax law or is it at the
discretion of the plan provider? Joetaxpayer's example clearly shows
that each company can violate the spirit if not the letter of the law
pretty much at will.
At any rate, unlike health care expenses, the nature of dependent care
is that it is normally paid for based on the passage of time (by the
hour or day, whatever) so it would be uncommon in the real world to get
too far ahead of contributions. And as I recall without looking it up,
you can only get a tax benefit for care provided in the current year, in
other words you can't pre-pay or post-pay and get a deduction.
As a financial planning issue, this opens all sorts of tangential
questions... such as, if one knows one is going to quit a job, should
one plan to get a reimbursement in excess of contributions? Or, even
without quitting, could one somehow bank the "premature" (advance)
reimbursement and at least earn interest on it?
-Mark Bole
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Posted by joetaxpayer on September 27, 2007, 8:19 am
Mark Bole wrote:
> As a financial planning issue, this opens all sorts of tangential
> questions... such as, if one knows one is going to quit a job, should
> one plan to get a reimbursement in excess of contributions? Or, even
> without quitting, could one somehow bank the "premature" (advance)
> reimbursement and at least earn interest on it?
This would take muck foresight. The plan I am most familiar with has an
annual 'signup' in October when one must decide the amount for the next
year. As we agree (and Chris confirmed in his reply) the HSA will
reimburse in advance of paycheck deposits but not in advance of
expenses. So there no opportunity for interest, but there is one for
someone with a known early year change event and known expense.
e.g. A baby due in late January. There's a high expense, and the change
in family status lets you change withdrawals.
e.g.2 One knows they will quit in February. So they load up on
prescription glasses in January, and quit after reimbursement.
(Disclaimer - I'll repeat my caution, that for a small company doing
this may be less than ethical, purposely planning to pocket what isn't
yours)
JOE
www.blog.joetaxpayer.com
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Posted by Chris Cowles on September 28, 2007, 5:21 am
>
> While my own experience with health care FSA mirrors what was posted
> so far, is it safe to assume that ALL cafeteria (section 125) plans
> operate this way? In other words, is it written into tax law or is
> it at the discretion of the plan provider?
I think so, but cannot cite law to corroborate that.
--
Chris Cowles
Gainesville, FL
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