FSA – Use it or Lose it

Flexible Spending Accounts.  Do you have one, do you use it?  If you do, listen up!

FSA’s are offered by many employers as a way for employees to save money on taxes.  Employers deduct money from your paychecks for medical expenses and/or dependent childcare.  You choose the amount (within limits) that you think  you are going to spend.

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Okay, sounds easy, even great. You save money because that money is not taxed.  There are lots and LOTS of rules and I don’t know them, so if you are reading this to learn how to use them, STOP

I can only tell you what I did that really screwed me up and hope that you don’t do the same thing. 

Every employer is different but these accounts are generally the same because they follow a set of IRS rules.  

But here is my story, sad but true!

As you know, since I am heading into a BK, I decided to see when my daughter would not be eligible for the Dependant Care piece of the FSA.  So I called HR and they sent me a little pamphlet that I read.  It stated the child must be 13 or younger.  But OMGosh, my daughter turned 13 last May. 

Now what?  OMG, am I in trouble?  Am I going to jail?  I about died.  Okay deep breath. 

I called the third party company that we use to administer the plan.  Here is what they told me I had to do… IMMEDIATELY:

1) Stop Payroll Deductions
2) Send them a check for $3187.50 NOW, like TODAY!

I was floored and you can believe shocked.  Number one, why should I pay back money they took out of my check and number two, wha, huh?

I didn’t get it at all.  But you know what, neither did my Human Resource department.  Can you believe I am the only one in the world who screwed this up?  Anyway.  I was more than a little scared and finally, I got one part of the answer back from HR today.

1)  I can either pay back the whole amount to the FSA company and then they can tax it and send me a check, or
2) I can wait until the end of the year and have the IRS help me figure it out.  I think this year I will have to hire a tax person!

The other part to the question is what happens to the remaining total $1312.50 that they are going to continue to deduct from my paychecks until the end of the year?

Guess, what, that is the use it or lose it part.  Normally, you cannot change your deductions mid year.  If you don’t use, it’s gone baby, gone.

These are extenuating circumstances and I am still waiting to hear what, if anything the company can do.  I certainly don’t want to kiss $375.00 a month goodbye.

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I won’t even really know the true cost of this mess is until tax time.  Very scary since I don’t even know how much money I am going to have because of the BK I am filing in a couple of weeks! 

OMG, can it get any worse?

I have a feeling it can.

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7 thoughts on “FSA – Use it or Lose it

  1. Since it says “13 and younger” would that mean she still qualifies this year while she’s 13? You mentioned they told you to stop payments at once, so why would you have to put into it the rest of the year? I would think that her being too old would qualify as a valid reason to stop payments into the FSA/Child care portion. I would just sort it out at the end of the year with your taxes. Hopefully you are in a low enough tax bracket and enough deductions that you won’t be taxed too much on the $3187.50 or at least will have had enough taxes already withheld to cover your taxes due for the year. I stopped using the FSA for medical expenses because #1) I have a terrible time estimating what it will be for the year and #2) we’ve had so many deductions to take with child tax credit and education credit, and our itemized deductions that I usually end up getting back whatever was deducted during the year. Seemed pointless, to have to estimate and go through the hassle of the FSA claims so that my paycheck wasn’t taxed on that amount, when I just get it back anyway on my tax refund.

    • Hi One Family!

      I had to re-read it, it states: Must be for the care of a tax dependent child under the age of 13 who lives…”

      But I didn’t know. It really is my stupidity.

      The HR dept. is looking into it and will let me know if I have to pay and let them keep deducting. It will be thru the end of the year if they do.

      I am NOT using it again, not even for medical next year. Such a hassle really. You are right about that!

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    • I think it was until she turned 13 in May. So it was like a few months that had gone by until I cought it, but it was also because I had put in for the WHOLE year of FSA that I almost lost! thank goodness they did NOT continue taking it from my check all year!

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