<p>A few years ago we set up online a( before tax) dependent account for child care- through work- the way the information was presented to us- it appeared that the money could be used for child care/camp/tutoring, anything extra that would be spent on a child.
( as it was online and not on phone- there wasn’t anyway to ask questions-to clarify, by the time we realized that it was only to be used for child care and nothing else- $600 had been put into that account)
So- the company would not release the money to us, as we weren’t paying for child care- we appealed, but the money stayed at the place of employment.
Sucks right? gets better.
So when I was doing the 1040 form, they had a place for child care credit- but then it appeared that while there was a place to note that you had before tax money taken out- there was also a place to note that you had forfeited the money.
Or at least that is how I read the form.
So while we showed that the money was taken out- we also showed that we did not recieve it in anyway.
However- I have now received something from the IRS saying that even though we didn’t recieve it- we still have to pay tax on it- and becuase we didn’t we are fined.
Does anyone know what I am talking about?
thanks</p>
<p>OMG, that worse than suks. 
I know what your are talking about, fortunately NOT from direct experience. I know that when you sign up for those medical or childcare savings accounts it is “use it or lose it.” But beyond that I don’t know the rules. So you lose the money, but then owe taxes on it because it wasn’t used for childcare, and now must pay a penalty for not paying the taxes. hoooooo boy! </p>
<p>First advice, consult a good tax advisor.
I bet there is plenty of info online, tho. I suggest a search on “Childcare savings accounts tax traps”</p>
<p>I can offer one bit of advice based on experience: If it turns out that you lose the money and still owed income tax on it, you may be able to get the fine, or penalty waived if you write an explanatory letter to the IRS. My mother-in-law was hit with a very stiff penalty when she forgot to take a minimum required distribution from her IRA. This enraged me, because it seems to me a person becomes more likely to “forget” to take an IRA distribution the older they get. The penalty was greater than the taxes owed! In that case the rules specifically allowed the penalty to be waived if a letter of explanation was sent (including a promise to not do it again.) </p>
<p>Good luck! As much as I hate taxes but accept them as a necessary evil, I truly despise “tax traps,” and this is one.</p>
<p>BTW, what specific expenses were denied by your employer? I thought daycamp for a child under 13 was ok, if that made it possible for you to work.</p>
<p>we didn’t acutally need it for “child care” as I worked less than part time, but we did have expenses of tutoring that I thought the account could be used for.
I didn’t realize that it was so tightly structured- the company was really pushing the accounts, even though it didn’t really make much difference tax wise for less than $1000, I really wanted it- because then it would already be deducted from pay check and we didn’t have to “find the money” at the end of the month to pay for tutoring.
But what irritates me even more than being fined for not understanding the tax forms- is that the company pushes these accounts, and then keeps the money- without even saying what the money will go to.
Boeing is not a non profit- but maybe I should write it off as a deduction ? 
JK</p>
<p>The “use it or lose it” provision is explained everywhere as a warning. These funds are generally used to offset administrative costs of the program. But I can’t find anywhere an additional warning that funds not used, and then lost, are also added back into your taxable income. It probably makes sense in IRS logic but it is disappointing that the additional warning is not specified ANYWHERE! At least I can’t find it.</p>
<p>I guess you could compare it to giving $1000 to a charity that turned out to be a fake charity. You would lose your money, and you would lose your deduction. So maybe you can take some kind of a casualty/loss deduction. Consult your tax advisor!</p>
<p>well we don’t really have a tax advisor I have always done our taxes and dont’ usually have a problem- we have pretty simple taxes- don’t own anything we don’t live in, some years we don’t even have to itemize- that was exciting!</p>
<p>there was one year however, that I didn’t use the sticker that they used to send- and when I filled out our joint return I put my name and soc # first- I figured they were filed under both
apparently not- then they fined us for not filing
Now I just do it online.
I think the company is getting better about having the info more transparent- the year we did it- was the first year that it was offered as an automatic deduction, and they were pushing to have workers open up both medical accounts and child care accounts.
It was always hard to guesstimate what we would spend on medical- so that one I didn’t want to get into- but the child care one- I really didn’t realize that unless you had to have child care so that you could work, other uses wouldn’t be eligible.
It makes sense that it would be added back into your taxable , but to not have the use of it- and still pay tax on it- sounds like something the govt would come up with.</p>
<p>I switched the order of our names one year because since I was the one filing out the forms it really seemed like I should get top billing and we didn’t have any problem. It’s been that way for the past few years. But I do file online so maybe that makes a difference.</p>
<p>online is so much easier- I love the idiot prompts even if I don’t like having to install 150 fonts to use the software</p>
<p>I suspect your problem is this:</p>
<p>The amount you should have reported for gross income, if you used the correct box (Box 1) on your W-2, was net of the deduction for the dependent account. Box 10 should have been blank, as you received no benefit.</p>
<p>If you then also deducted any child care amount elsewhere, line 47 for instance, on the 1040, then you were double dipping so to speak. Hence the tax bill was legitimate. </p>
<p>Read the instructions for IRS form 2441, or the form itself (you can find it here: <a href=“http://www.irs.gov/formspubs/lists/0,,id=97817,00.html[/url]”>http://www.irs.gov/formspubs/lists/0,,id=97817,00.html</a>) for more details. </p>
<p>Your “penalty” should only really be an interest payment, although they do not call it that. If you were hit with anything more than that, you should probably appeal. </p>
<p>If the employer did include something in the W-2 box 10, you need to get that corrected, if it is still allowable under IRS rules. </p>
<p>BTW, tutoring has never been an allowable child care expense. I don’t know why you thought it would be. A summer camp, even if it is educational is, because of the custodial role. Same with after school activities. So IF you had a child under 13, who received tutoring after school while you were not in the house because you were working, it might be deductable because of the custodial role of the tutor, not the educational component.</p>
<p>newmassdad, sending a kid to any summer camp is deductible?</p>
<p>dstark,</p>
<p>NO. There seems to be a lot of confusion between income tax deductions and income tax credits.</p>
<p>A deduction is an amount subtracted from your gross income. An example would be qualified moving expenses. Through Schedule A, more items like state income taxes, or mortgage interest can be deducted, to arrive at a net income amount one then uses to calculate taxes.</p>
<p>Completely separate from this are a series of tax credits, including adoption credit and child care expense credit. The allowable amounts are subtracted from the tax due.</p>
<p>So, you MAY be able to claim a child care tax credit through form 2441, if you meet eligibility requirements. Since the gross amount subject to calculation for the credit is $3000, any camp expense beyond 3K will result in no benefit. Anyone with a decent income (over 43K after deductions) can get a maximum credit of $600, if expenses were $3,000 or more. Not so generous.</p>
<p>So, yes, ANY camp expense can be used for the credit, if one meets the requirements, but most of the cost of an expensive camp will not lead to any tax benefit.</p>
<p>In the case of employer sponsored flexible benefit plans, I think only day camp is deductible and only in the case of working parents. There is a $5000 dollar per year maximum deduction for child care under these Section 125 benefits. After-school care alone for my son is close to that figure. Full-time daycare for infants is more than 10k per year in our neck of the woods. This figure hasn’t changed in at least 10 years.</p>
<p>What are the eligilbilty requirements to get this credit? Are there income limits where you lose the credit or the credit is phased out?
Is the credit $600 a kid if you make over 43k?</p>
<p>Edit: I am reading about the tax credit. The kid has to be 13 or under? I guess I am out.
I have also read that you don’t count any expenses for sending a kid to an overnight camp.</p>
<p>this isn’t a credit
it is a flexible spending account-
the $600 is money that was opted to be taken out of the paycheck before taxes, much as retirement account or other contributions can be.
when this particular account was set up- I obviously didnt have the impression that it would be forfeited if not used for child care.( she was younger than 12)
I was working at the time- but only part time-although I anticipated that to change ( it didn’t)
We chose to have $600 over a period of time deducted, someone else who had higher or lower expenses, may have decided on a different amount.( there is a limit of $5,000)</p>
<p><a href=“Bankrate: Guiding you through life's financial journey”>Bankrate: Guiding you through life's financial journey;
<p>What you’re talking about is a Dependant Care Benefit. Basically, you put as much as you want into it up to $5000 and it is to be used for child care only. Then when you file your income tax return, the amount in the box for DCB must included on your form 2441 as used for child care. If you don’t report that you used it, then you have to pay the tax on it, because it was deducted from your income and you can’t do that without using it for child care.</p>
<p>It would be like deducting money for an IRA from your income and then not putting the money into your IRA. </p>
<p>For example: Your husband makes $50,000 a year. You make $2000 a year. You can put up to $2000 into the DCB because that’s all the second person made. This money has to paid paid for child care and reported as such. It is to be used only for the care of a child under the age of 13 and must be so that both parents can work. Now when your husband gets his W-2 (or yours) it shows that only $48,000 of it is taxable. But if you don’t use that other money for child care, you have to add it back into income and pay the tax.</p>
<p>If I can clarify anything else, let me know. I know it wasn’t very clear.</p>
<p>boysmom,</p>
<p>You are wrong.</p>
<p>Just go look at lines 12 and 13 of IRS Form 2441 (you can find it here: <a href=“http://www.irs.gov/pub/irs-pdf/f2441.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/f2441.pdf</a> )</p>
<p>See how the math works out?</p>
<p>Yes, the forfeited amount is reported in Box 10 of the W-2, and inserted in line 12 of the 2441. But you then subtract the forfeited amount on line 13.</p>
<p>I appreciate the help- but i guess it is all water under the bridge
I probaly should have a tax advisor- but we dont have an attorney- a plumber or a financial consultant either- we cut our own hair too! 
The way that the company originally presented it- it sounded like a way to get people to start savings accounts for child care and medical expenses- so that they were not stuck in case of large bills.
THe tax implications were totally downplayed, at least I missed them.
I may have filled out the forms incorrectly- but there is a part to show if you forfeited it and according to my records that is what I submitted-
but anyway- I think it is very confusing that I have to pay tax on money we didn’t recieve- I totally understand that I lost control of the account- as my work did not increase as anticpated and we didn’t need the child care- but then to be taxed on money that the employer didn’t have to pay out- feels like adding insult to injury
Ouch!</p>
<p>ek,</p>
<p>you should NOT have to pay tax on funds you did not receive. You might want to request a meeting with the IRS to review your return. You also might want to have a tax professional review the situation, depending on the size of your tax bill.</p>
<p>Why do you think you are being taxed on funds you did not receive?</p>
<p>well we just received somthing from IRS for 2003 which says that the dependent care benefits that we reported was different than what the company said we received- ( I do have a copy of return- but not the w-2 forms) and the only way my numbers work out the same is if the number that we reported as forfeit- are marked as recieved.
So it is less than a couple hundred dollars for back tax and fine- but still…</p>
<p>I should probably ask to sit down with someone- but really… my car was just broken into and my purse and everything in was stolen and I have been trying to straighten out my credit report anyway because Experian really messed it up. I sent for it last year, when we refinanced the house, and they had some inaccurate information on it- so I have been trying to prove that I haven’t lived any of the places that they say I have lived and I don’t have two soc security numbers. Now- I find that they havent corrected any of the things that I have been trying to get them to correct and they have even added about 10 more addresses to my file!
They have me living in 20 different addresses in CA, when the only time I was even there in my life was when I was 13 on a family trip to Disneyland.</p>
<p>Is it any wonder I have been perusing Rick Steves tours through Europe?
The Italian village one sounds really nice:)</p>
<p>EK,</p>
<p>You are an identity theft victim, I fear. You should contact all the credit reporting agencies, 3, and put a block on your records, AND you need to get a report from each to see if similar mistakes have popped up.</p>
<p>It is VERY important to keep records of all correspondence with the credit bureau folks, and insist on a note to your file if necessary giving your side of the situation. </p>
<p>These problems can follow you for a long time, and don’t get better with time.</p>
<p>For goodness sakes, EVERYBODY please purchase a tax program. They are less than $25, Deluxe version with all kinds of help and references for perhaps $10 more. Last year’s program is free. This 2005 tax year has been already released. </p>
<p>The programs are very simple, follow the questionaire.</p>