During these days we have an enrollment period for 2014 benefits at my workplace. After this window, no changes will be allowed to my contributions selections.
One of the benefits is a DCFSA. One attribute of such benefit is that one can take advantage of it up to the smaller income among him or his spouse (and up to $5000 for two kids).
Generally, any money that is not claimed by the end of the year is forfeited - which is why it is important to not simply make the maximum contributions.
In past years I used this account to claim DC expenses while my spouse was a full time employee. In 2014, I expect her to have some unpredictable income - certainly not something to plan accordingly.
That said, according to the US Forms 1040 and 2441 instructions, any distribution over the maximum eligibility (determine by the lower earning person) should be reported as taxable income on the Form 1040.
If my understanding is correct, then the best strategy should be to:
Make maximum contributions - up to the actual expenses per child.
Claim all the money during the year, according to the actual payments and account balance.
The difference between this amount and whatever the spouse will earn during 2014 will go back to the 1040 w/o any penalty.
To make an actual example, say the numbers are:
- $1,500 child #1 afterschool ("aftercare") program
- $5,000 child #2 preschool
- $2,000 possible spouse earning
- Make $5,000 contribution to DCFSA (the plan maximum)
- Claim $5,000 expenses during the year.
- When filing 2014 returns - account $2,000 for credit and add $3,000 to the amount of income reported in W-2's.
Is this correct? Am I risking any money by utilizing this strategy?
Although expenses can also be credited via that child tax credit, it is better to have it under DCFSA, so I want to maximize this benefit, but w/o risking the deposit money.