Confused wrote:

- quote -

A gold star for your tax preparer. You have an ineligible
expense as you are married and your spouse who is not
working fails all the other eligibility tests. Therefore,
any reimbursement from your employer is taxable income. You
complete Form 2441 Part III with qualified expenses of zero.
If you work your way through the calculations you will find
that $634 winds up on Line 27 as taxable benefits. You write
the word "DCB" not "DCAP" on Line 7 of the 1040.

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Confused wrote:

- quote -

The pretax status is based on the rules you cited above,
i.e. wife not working, nor seeking work, nor student. The
purpose of the account is to help the person/couple who
requires daycare for that purpose. Your tax-preparer is
correct, you should keep him/her.

JOE

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

I am so confused about 2005 DCAP (Dependent Care) FSA
(Flexible Spending Account) and it's taxability status that
I think I would have a difficult time explaining how much.
However, here is my situation and I hope someone can provide
a simple opinion:

I am a sole wage-earner for my family earning more than
$50,000. My wife did not work, did not seek work, nor was a
full time student for 5 or more months during 2005, but was
able to take care of herself, i.e., she is not disabled. I
have a DCAP FSA with my employer for an election year that
runs July 01, 2005 to June 30th, 2006. I had pre-tax
contributed $634.35 to the FSA and claimed and received the
$634.35 for eligible Dependent Care (3 year old son in day
care) expenses of about $1186.00 incurred between July 01,
2005, and December 31, 2005. The $634.35 was shown on Line
10 of my W-2.

My tax preparer claims that the $634.35 on Line 10 of my W-2
is taxable income. My employer, and the company that
handles the FSAs, Wageworks, appears to claim that the
$634.35 mentioned herein is non-taxable to me since it was
contributed to the FSA pre-tax, period.

I have not yet sent in my tax return. So far I am inclined
to go with the tax preparer and included the $634.35 on line
3 of my return (Form 1040) with annotation "DCAP" as it
showed on my form 2441. However, since my collegues and
others in the company informally insist that the FSA, as
pre-tax contribution, is a non-taxable amount (with the
disclaimer about seeing appropriate tax advice, etc.) I
would appreciate an opinion.

Thanks,
OhSoConfused.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >