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My spouse does not work, and I contributed into DCFSA (under the IRS limit) without knowing the rules.

We have child-care expenses in the year, but I don't believe we can use it according to the rules, since we should not be contributing in the first place.

Is there any way to salvage the situation, such as taking part of that money out, while paying some taxes or penalties?

Thanks!

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You can use the DCFSA for the qualified expenses, but you cannot exclude it from income. Since the employer doesn't know about your situation, the employer excluded the amounts from your taxable income on W2. You then need to put them back in using form 2441.

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