Put too much into Dependent Care Account

[dornochgolfer]

[I live in Massachusetts.]

Through some miscommunication, my wife and I put too much money into our dependent care accounts at our companies ($3000 at hers, $4000 at mine) for 2005. Everything I read says that there is a maximum of $5000 that can be used.

My wife has already "redeemed" her $3000. I have not done anything with mine. I am sure I could get my entire $4000 out, since my flexible spending plan administrator has no knowledge of my wife's plan. But (1) I don't think it's legal, and (2) I'm sure it would come out on our tax return.

All I really want to do is not lose the extra $2000. I don't mind getting reimbursed but then having to paying income taxes on it, but I am not sure how to go about it. Has anyone out there been in a situation like this?

 

[Beth3]

You are correct that you and your wife combined cannot defer more than $5,000/year into a dependent care account. Are you saying you made this deferal election last year for calendar 2005? Or does your flex plan year run for a different time frame?

 

[dornochgolfer]

Yes, we made the mistake over a year ago when choosing amounts for the 2005 calendar year, although we did not realize it until recently. Basically, circumstances changed so that I had more money placed into my account than in previous years. Had we realized it, we would have reduced the amount in my wife's plan.

All I am trying to figure out is how to legally get all $4000 out of my account, even if it means paying extra tax on the excess. I'm just not sure how to go about it.

 

[cbg]

I talked to a friend about this post - this friend knows as much about this kind of issue as anyone I know; in fact, she works for one of the biggest law firms in the country and the ERISA lawyers come down to consult with her.

She thinks you should talk to your tax advisor, but that the easiest thing to do is just add the extra $2000 back into your taxable income when you file your taxes. It's a fixable problem; you will have to pay tax on it but she says it will be easier to do it when you file your return than to try to amend the error through your employer.

 

[Beth3]

dornochgolfer, cbg's recommendation should work assuming you have a total of $4,000 in eligible expenses to get the money out of your dependent care account.

 

[dornochgolfer]

cbg,

Thanks very much for your post. I was hoping that it would be as simple as that, but I just couldn't find anything online that dealt with this situation. And if I had a tax advisor, I would have asked him/her, but up until now I have always been able to do them myself (with help from TurboTax).

And Beth3, thanks as well. Yes, we don't have any problem with having sufficient child care expenses. I wish we could put even more money into the account!

 

[Beth3]

Write your federal representatives. As far as I am aware, the $5,000 dependent care limit hasn't been changed since the 125B reg's were first passed. (At the very least, it would be nice if they allowed more if a working parent had more than one child in child care - a family with one child gets the same $5,000 "benefit" as someone with multiple children in day care.)