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I have a Dependent Care FSA at work, and have exhausted the funds for this year during the first half of the year (as I typically do). I will be eligible to use it for one more year, as my youngest is in his last year of preschool, and so want to ensure I understand the rules properly to take advantage of this benefit.

I'd like to pay for his year of preschool in one lump sum this year (in August), mostly to simplify things (as it's being paid from funds gifted to us designated for education, it's better for us if we disburse them at once rather than having to manage transfers each month). However, I would like to put away money in my FSA in 2018 and have it officially cover this expense (which would be approximately half incurred in 2018).

Can I do this? Or do I need to wait until at least 1/1/2018 to write the check covering 2018 utilization in order to be reimbursed from 2018's FSA? It's clear to me that you cannot claim on your FSA for funds that are spent but not yet used - i.e., I could not claim the full 2017-2018 tuition in 2017 - but what's not clear to me the is the reverse.

If relevant, the provider has a monthly billing schedule that is for an identical amount of money (no discount for prepayment) that I would use to show what expenses are for what month.

  • I see in Publication 503 Expenses prepaid in an earlier year. If you pay for services before they are provided, you can count the prepaid expenses only in the year the care is received. Claim the expenses for the later year as if they were actually paid in that later year. referring to the Childcare Tax Credit, but I don't seem to find an equivalent publication for DCFSA? – Joe Aug 2 '17 at 22:03
  • I would be surprised if the DCFSA were handled differently. Call the IRS to confirm, but I suspect you can be reimbursed for whatever fraction of the payment actually covers 2018. – chepner Aug 3 '17 at 0:31
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This is probably more of a long comment than an answer, but here we go.

Have you called your employer's FSA administrator? What will matter here, almost more than what the IRS says is allowed, will be what a claims processor at the administrator will approve.

Dependent care, transit and parking FSAs are pretty different from medical FSAs because they function on a money-in money-out manner, you can only be reimbursed from funds that have been contributed, the employer is not on the hook for your annual contribution the way medical FSAs work.

To some extent this will boil down to your employer's FSA administrator. What constitutes a proof of claim? Can the backup invoice and accompanying receipt have different amounts? What if the receipt is from a prior year?

In a practical sense I wouldn't give the administrator the benefit of the doubt. And would probably wait to pay 2018 fees in 2018 to avoid the potential headaches getting the reimbursement out of the administrator.

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