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Subject Author Date
Dealing with surprise restriction on dependent care account Ed Roberts Jr 04-23-2006
Posted by Ed Roberts Jr on April 23, 2006, 2:02 am
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 I recently started a new job that offered a benefit I have
not had before: flexible spending accounts for dependent
care. The brochure said it could be used for babysitters and
summer day camps, so I signed up to have $1,000 of my income
diverted to the account, tax free. I figured we would use
that money going out twice a month plus summer camp.

Now the benefit year has started and I've gotten the
complete account agreement. I noticed a restriction that I
hadn't seen before: the dependent care is provided so either
my wife or I can work, or so my wife can go to school
full-time, or she is incapable of self care.

My wife does not work (she would disagree but you know what
I mean) and takes only one college class at a time (i.e. far
from full time). Neither of us would be working on the
evenings we would have a babysitter. Nor would she be
working when the children are at summer day camp.

Although the time for changing benefits is past, is the
company allowed to cancel a flexible spending account? If
there's a chance, I'll ask for it, but if there's no chance
I don't want to rock the boat.

If we're stuck with the account, then how can we salvage the
money we are putting into it? I have a documented prior
interest in screenwriting, so could a movie date be
considered work-related? If either one of us writes
restaurant reviews and tries to sell them (successful or
not), could a dinner date be considered work-related? Other
ideas?

Thanks,
Ed

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<< and does NOT constitute legal OR professional advice. >>
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Posted by Harlan Lunsford on April 24, 2006, 11:14 am
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 Ed Roberts Jr wrote:

> I recently started a new job that offered a benefit I have
> not had before: flexible spending accounts for dependent
> care. The brochure said it could be used for babysitters and
> summer day camps, so I signed up to have $1,000 of my income
> diverted to the account, tax free. I figured we would use
> that money going out twice a month plus summer camp.
>
> Now the benefit year has started and I've gotten the
> complete account agreement. I noticed a restriction that I
> hadn't seen before: the dependent care is provided so either
> my wife or I can work, or so my wife can go to school
> full-time, or she is incapable of self care.
>
> My wife does not work (she would disagree but you know what
> I mean) and takes only one college class at a time (i.e. far
> from full time). Neither of us would be working on the
> evenings we would have a babysitter. Nor would she be
> working when the children are at summer day camp.
>
> Although the time for changing benefits is past, is the
> company allowed to cancel a flexible spending account? If
> there's a chance, I'll ask for it, but if there's no chance
> I don't want to rock the boat.
>
> If we're stuck with the account, then how can we salvage the
> money we are putting into it? I have a documented prior
> interest in screenwriting, so could a movie date be
> considered work-related? If either one of us writes
> restaurant reviews and tries to sell them (successful or
> not), could a dinner date be considered work-related? Other
> ideas?

I'm sure the company informed you as to the restrictions and
conditions before you signed up. ONLY if you can prove they
didn't, might you have a case for voiding your signup.

But once in, you're stuck. And the only way to use those
dollars is by actual child care expenses as allowed by tax
law.

ChEAr$,
Harlan Lunsford, EA n LA

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by joetaxpayer on April 24, 2006, 11:33 am
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Ed Roberts Jr wrote:

> I recently started a new job that offered a benefit I have
> not had before: flexible spending accounts for dependent
> care. The brochure said it could be used for babysitters and
> summer day camps, so I signed up to have $1,000 of my income
> diverted to the account, tax free. I figured we would use
> that money going out twice a month plus summer camp.
>
> Now the benefit year has started and I've gotten the
> complete account agreement. I noticed a restriction that I
> hadn't seen before: the dependent care is provided so either
> my wife or I can work, or so my wife can go to school
> full-time, or she is incapable of self care.
>
> My wife does not work (she would disagree but you know what
> I mean) and takes only one college class at a time (i.e. far
> from full time). Neither of us would be working on the
> evenings we would have a babysitter. Nor would she be
> working when the children are at summer day camp.
>
> Although the time for changing benefits is past, is the
> company allowed to cancel a flexible spending account? If
> there's a chance, I'll ask for it, but if there's no chance
> I don't want to rock the boat.
>
> If we're stuck with the account, then how can we salvage the
> money we are putting into it? I have a documented prior
> interest in screenwriting, so could a movie date be
> considered work-related? If either one of us writes
> restaurant reviews and tries to sell them (successful or
> not), could a dinner date be considered work-related? Other
> ideas?

Here's my answer, which I believe doesn't cross any ethical
line. Your employer won't ask for 'proof' your wife works to
provide the benefit. You submit the reimbursement requests
and take the reimbursement. When tax time comes, you are
100% forthright, and pay the tax on the $1000, which had
come out pre-tax. In the end, you've paid your tax and not
gotten any benefit, just gotten your own money back.

I had a year where my wife and I got our signals crossed, I
took $5000, and she took $2500 out of her checks. When
filing taxes for that year, I had to pay the tax on $2500
worth as the family limit was $5000.

JOE

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Arthur Kamlet on April 25, 2006, 7:49 am
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>> If we're stuck with the account, then how can we salvage the
>> money we are putting into it? I have a documented prior
>> interest in screenwriting, so could a movie date be
>> considered work-related? If either one of us writes
>> restaurant reviews and tries to sell them (successful or
>> not), could a dinner date be considered work-related? Other
>> ideas?

> Here's my answer, which I believe doesn't cross any ethical
> line. Your employer won't ask for 'proof' your wife works to
> provide the benefit. You submit the reimbursement requests
> and take the reimbursement. When tax time comes, you are
> 100% forthright, and pay the tax on the $1000, which had
> come out pre-tax. In the end, you've paid your tax and not
> gotten any benefit, just gotten your own money back.

Actually you come out ahead if this is what you do.

That's because when you file your tax return, you will be
adding back the money in the child care reimbursement
account to your wages on Form 1040 Line 7, and thus paying
income tax on that money.

But that money has escaped FICA & Medicare tax and all you
are doing is paying income tax on it. So you come out
ahead by the FICA/Medicare tax.

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Dick Adams on April 27, 2006, 12:09 am
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Ed Roberts Jr wrote:

> I recently started a new job that offered a benefit I have
> not had before: flexible spending accounts for dependent
> care. The brochure said it could be used for babysitters and
> summer day camps, so I signed up to have $1,000 of my income
> diverted to the account, tax free. I figured we would use
> that money going out twice a month plus summer camp.
>
> Now the benefit year has started and I've gotten the
> complete account agreement. I noticed a restriction that I
> hadn't seen before: the dependent care is provided so either
> my wife or I can work, or so my wife can go to school
> full-time, or she is incapable of self care.
>
> My wife does not work (she would disagree but you know what
> I mean) and takes only one college class at a time (i.e. far
> from full time). Neither of us would be working on the
> evenings we would have a babysitter. Nor would she be
> working when the children are at summer day camp.

I 'speculate' the babysitter need not be for work-related
activities. Also if you wife was a full-time student, she
would not be in school during summer camp. Someone who
understands the regs on this needs to comment on this before
you follow my 'speculation'.

> Although the time for changing benefits is past, is the
> company allowed to cancel a flexible spending account? If
> there's a chance, I'll ask for it, but if there's no chance
> I don't want to rock the boat.

One year I found out after the fact that I health care plan
in which I enrolled was an HMO. The devil invented HMO's
and I had been in one years before. Never Again! I flipped
out and went to Human Resources with all of the paperwork in
hand and they let me change. So you will be in a position
of strength if you can shoe that the upfront information you
received was not clear as to what you were getting.

Keep in mind that your employer gets to pocket any funds
that go unspent, but is at risk when people resign and have
received more from the plan than they have paid into it.

> If we're stuck with the account, then how can we salvage the
> money we are putting into it? I have a documented prior
> interest in screenwriting, so could a movie date be
> considered work-related? If either one of us writes
> restaurant reviews and tries to sell them (successful or
> not), could a dinner date be considered work-related? Other
> ideas?

I believe the worse case scenario you are facing is having to
pay the taxes on the funds because the limit on your use of
these funds is the lesser of your wife's income or the $1000
unless she is a full-time student. Thus, I 'speculate' that
if your wife took a part-time job or had self-employment
income, you'd be ok. When you suggest she gets a part-time
job, do not mention my name. <G>

See above about possibly not needing to be work-related.
Writing restaurant reviews is a modestly profitable endeavor
especially if, after you have published a few, you work out
prearrangements to be reimbursed bill, but not tip or taxes.
It is not as competitive an endeavor as it may seem depending
upon where you live. Contact small local papers to see if
they are interested and find material on writing reviews and
getting reimbursements.

Dick

P.S.: 'Speculate' is the same as 'Guessing'. 'Speculate'
just sounds more professional.

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< Just tell the IRS auditor you read it on the Internet. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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