5

We are an unmarried couple with a young toddler living in an extended household - filing separate tax returns. The child can qualify as a dependent for either of us since we both live with him throughout the year.

It would be better for the other parent to claim the child since I make too much money to benefit from the child credit and she would get the child credit. However, I' already signed up and used the DCFSA throughout the past year.

I see documents that state that a custodial parent may still use a Dependent Care FSA without claiming the child on their taxes if they are divorced and living separately and the other parent claims the child on their taxes.

However, does this apply for unmarried parents living together?

I see in the publication 501 that "The exclusion from income for dependent care benefits" have to be bundled with everything else to one parent. Is "The exclusion from income for dependent care benefits" referring to DCFSA?

If I can't do the DCFSA without claiming the child, how would I unwind/undo the DCFSA now at the end of the year at tax time?

1 Answer 1

3

Your scenario is covered by Pub 501 tiebreaker rules, in Example 8:

Example 8—unmarried parents. You, your 5-year-old child, L, and L’s other parent lived together in the United States all year. You and L’s other parent aren't married. L is a qualifying child of both you and L’s other parent because L meets the relationship, age, residency, support, and joint return tests for both you and L’s other parent. Your AGI is $12,000 and L’s other parent's AGI is $14,000. L’s other parent agrees to let you claim the child as a qualifying child. This means you can claim L as a qualifying child for the child tax credit, head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the earned income credit, if you qualify for each of those tax benefits (and if L’s other parent doesn't claim L as a qualifying child for any of those tax benefits).

The summary here is that you can choose who claims the child, however, the DCFSA can only be used by the person who claims the child.

The first thing I would do in your shoes is immediately contact your DCFSA provider, and possibly your employer, to find out if you can undo last year's contributions and get the money back. (Note you'd need a corrected W2 as well to re-add your contributions to your income.) If they claim you can, I would consider waiting to file until you have the money in hand. If you can't unwind it, depending on how much you contributed, it's pretty unlikely that the sum total of that loss will be outweighed by the benefit of your partner claiming the child instead of you, so you'll probably need to claim the child yourself this time.

Side Note: Given this, if you're still contributing to the DCFSA, you may want to consider stopping for the remainder of this year. It may still be possible to unwind this year's contributions.

4
  • 1
    Good find! the last sentence refers to all of them. The lower-income parent can claim all of these things if the higher-income parent doesn't claim any. If the higher-income parent claims any (including DCFSA), then the quote I brought comes into play: in case of disagreement the IRS will allocate the benefit to the higher-AGI parent.
    – littleadv
    Mar 11, 2023 at 22:22
  • @littleadv Thanks for the clarification. Fortunately nearly my entire edit to this answer hinged on a looser interpretation of "any", but after reading your comment it's obvious that it means "claims none of". I rolled it back since option 2 was not a valid option.
    – TTT
    Mar 12, 2023 at 16:31
  • Yeah that looks like the right answer... unfortunately the other's benefit is significantly more than mine so I'm going to just try to pay taxes on the dcfsa reimbursed amount - as long as I don't have to pay the reimbursement back and "lose" the full $5000 contribution, I should be fine to just pay the tax on the already reimbursed $5000. Mar 12, 2023 at 22:20
  • @MonkeyBonkey Note FICA may need an adjustment as well.
    – TTT
    Mar 13, 2023 at 0:41

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .