Dependent Care Flexible Spending Account (FSA) question

[PTKen]

What is the name of your state (only U.S. law)? Maryland

I elected a $2,000 contribution to the Dependent Care FSA this year with the expectation that my wife would begin working. Our toddler is now 21 months old and my wife has not been working since she was born. Her plan is to make clothes to sell on Etsy. I am realizing that I may have slightly misunderstood the rules for the DCFSA when I made my election. My questions are:

1. If my wife will be self employed (make clothes to sell on Etsy), does she have to show a net profit on her Schedule C in order for us to claim our $2,000? She will be working during the day care period, but I cannot guarantee that she can show any profits since she will be just beginning the business. In other words, is it enough to file a Schedule C even if the net profit will be zero? (I hope not, but just in case!)

2. If my wife elects to look for a paid job instead, my understanding is that our DCFSA claims will be qualified as long as she is "looking for work". Do we need to show proof of this? What are the requirements for “looking for work”? I expect it may take her some time to find a suitable position if she chooses this route.

Thank you for any advice you can offer.

 

[cbg]

The rules require that she be working. It does not require that she be able to show a profit.

Generally the IRS does not ask you for proof that she is looking for work. If for some reason they do (random audit, for example) they will tell you what they want to see. The chances of that happening are quite unlikely.