Dependent Care Benefits & Withholding
Archived Q&A and Reviews
Change Withholding only during Open Season?
I've just learned of a very unusual and expensive wrinkle in the Depcare deduction rules, and am wondering if anyone else has come across this and dealt with it successfully. To wit: we've been using the DepCare deduction for several years against the cost of preschool for our son. He 'graduated' from preschool two weeks ago, and has just entered a private kindergarten. A much lower proportion and level of expenses for the new situation are deductible. However, the rules seem to say that we cannot change our with-holding until Open Enrollment this fall, and then not retroactively - only for upcoming year. (This is apparently an IRS, not a University, rule.) The upshot, as near as I can tell, is that a large fraction of the money witheld through the end of the year will simply evaporate - or be forfeited, as the University puts it. (Forfeited by us, that is - the University keeps it.) Has anyone else been caught in this trap, and if so can you offer any advice? Or am I missing something?
My sympathies. We lost money on this too, on the medical expenses side of the same program. Seems like the whole thing needs some kind of re-vamping. Why is so much less of your new school costs deductible? Maybe there is room for adjustment there. Or maybe after-care expenses could be deducted, or transportation costs? Good luck.
What does the enquirer mean by: A much lower proportion and level of expenses for the new situation are deductible. ? Is the cost of the new kindergarden much less than the preschool, and so you're not able to use up the total amount of your annual deduction, e.g., $5000? Or are you implying there are different rules for different types of programs: e.g., child care versus schooling, private versus public? If the former, then it is commonly known that you must project into the future what is the total annual expense for child care, then lose those funds if your actual spending falls short of that amount (maximum of $5K). No changes to your monthly deduction can be made (which seems to be discouraging, not promoting the use of Depcare) after the enrollment period. If it is the latter, perhaps you can better explain what you mean by new situation for all of us to learn better about this provision.
I also heard from another mom that if two spouses are offered Depcare from their respective employers, then the maximum of $5K can be raised to $6 or $7K (don't remember the exact number) -- which as most of us are quite aware, almost all child care programs cost much more than the absurd $5K/year. But my inquiries into this with the UC system said that this was NOT the case. Any one else know about this?
To the best of my knowledge, you're stuck. Same thing with my daughter, who started kindergarten last week. But for me, the cost of pre-school from Jan 1 until Sept was sufficient to use the whole $5000. Are you aware that you can use the whole amount for less than a year-long period? You just can't get reimbursed until the money is withheld from your paycheck, and the withholding is prorated throughout the year. (That is, after my December paycheck, I'll get reimbursed for this past summer!)
It is true that you must carefully evaluate your upcoming expenses for the year when you establish the amount you want to withhold for your dependent care account. However, I find that I spend quite a bit more every month on daycare than 1/12 of the maximum amount I can contribute annually. If this is true for you, and if you can get a receipt from your son's former preschool showing how much you paid between Jan. and Sept., I would think you should be able to recoup at least some of the difference between what you paid and what you've contributed to your dependent care account (less any previous reimbursements, of course). I hope that will be the case for you.
I don't think there is any getting around this regulation, but remember that your summer camp expenditures do qualify, and you can ask for a Depcare refund of those expenses through the entire year. So, if you spent more in June, July and August, you can include copies of those invoices, along with the current month. Good luck.
We had a similar situation with Child care reimbursement when my son stayed home with me after my daughter was born. What we found we could do was apply money already paid and receipts submitted against money coming in.
We were having 433.38 deducted from each paycheck and were paying $600 a month in childcare. This meant that every month we were putting in receipts for 166.62 more than we were claiming. Over nine months that added up to $1499.58 (or $499.86 for each month that he was not in childcare). We wrote a letter to the folks who administered the plan saying we wanted to receive our monthly payment based on receipts they had already received and they did it. We checked fairly thoroughly, and it seems that the childcare reimbursement is not per month, but per total childcare year: This is an IRS thing, not a plan thing.
We were not using the University's DepCare plan at the time so it may be possible that they are less flexible. So, this may be your way to get the money back that you are paying in.
We have been using the Depcare program for many years and as far as I can remember it has always been the case that the amount for the coming year needs to be adjusted during open enrollment. The open enrollment information talks about this, so I have always been careful to estimate changes for the coming year. Something that did happen, however, that I wasn't aware of until I ran up against it, is that apparently the cost of sleep away camps in the summer do not count as a valid expense. So as your child gets older, that needs to be added into the formula.
IRS guidelines define qualified childcare expenses which are eligible for UC's Depcare program. Basically, it's any payments, except for school tuition from Kindergarten on (thru age 12) which you make to Providers that care for your kids and allow parents/guardians to work.
The qualified expenses may include:
- Before & after school childcare;
- Summer programs & camps;
- Spring break camps, etc.
* Go to OP's Depcare program website:
* Don't forget to look into IRS Form 2441 & Pub. 503 re: credit for child and dependent care expenses when you prepare your 1999 tax returns.
We started at a school which required 1 month's tuition to be held in an account and applied to the *final* month of school. Our check was written this year, but will be counted by the school as tuition in yr 2000. How does DepCare view this payment?
From the DepCare website: You submit a claim form and receipts to UC HR/Benefits requesting reimbursement for eligible expenses after the dependent care has been provided. Therefore, you won't get your money back until after the final month of school. I pay my daughter's preschool at the beginning of each month for that month. If I submit my claim form before the end of the month, DepCare just holds it until after the month is over.
The IRS looks at when the cost was incurred, not when it was paid. Therefore, if you pay for 2000 childcare in 1999, you still get reimbursement in 2000. (Found this out the hard way!)