Are DCFSA funds used during the grace period taxable?

Forum|Forum|3 years ago
March 14, 2023
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I contributed about $5k to my DCFSA in 2022. I spent and was reimbursed for about $3k in 2022, and then spent and was reimbursed for the remaining $2k in January 2023. My original understanding was that all of that $5k was not taxable. However, I'm filing my taxes via TurboTax and it's saying that it's including $2k of my DCFSA contributions as taxable income. When I look at the worksheets TurboTax is producing, I see that line 16 on Form 2441 is asking for the "amount of qualified expenses incurred in 2022" -- which is only $3k. Does anyone know how the other $2k should be accounted for in order to be classified as non-taxable? I see line 14 is asking for the amount I've carried over into 2023, but the TurboTax UI isn't asking me that question. Maybe it's the case that the $2k I spent in 2023 doesn't count for 2022 but will be included in my 2023 tax return as a deduction?

TurboTax Home & Biz Windows

CatinaT1

The reimbursement you received in January 2023 was that for 2022 expenses? If it was 2022 expenses, it doesn't matter when the reimbursement happened; it was still 2022 expenses.

A DCFSA does not have Carryover, but it does have a grace period of 2 1/2 months (January 1 - March 15), during which you can incur eligible dependent care expenses and use funds remaining in your DCFSA from the previous benefit period. You have until midnight Eastern Time on April 30, following the end of the benefit period to file claims for eligible expenses incurred during the previous benefit period or grace period.

[edited 3.14.23 | 11:53am]

@pacers

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pacersAuthor

Thanks for the quick reply! The $2,000 expenses were incurred in January 2023. On the DCFSA administrator's website, it says I can use the 2022 funds until March 15, 2023. Are you saying that I am able to get a reimbursement from my 2022 DCFSA for expenses incurred during January 1, 2023 through March 15, 2023 -- however those expenses will count as taxable income? If so, is there any documentation explaining that?

When I called my DCFSA administrator, they said that all my 2022 contributions should be pre-tax and that I have until March 15, 2023 to spend them. My company documentation states "2022 DCFSA
January 1, 2022–March 15, 2023: Eligible medical expenses to be reimbursed from your 2022 DCFSA account are incurred.".