FSA Mid-year election

[Guest susanyb]

We have a new hire (eff 7-1) that wants to enroll in the Dependent Care Reimbursement Program. Our company's program allows an annual maximum deduction of $4992. During his previous 6 months he elected $1664 worth of deductions. How much is he eligible to have withheld for the remainder of the year with us?

[papogi]

The IRS really only wants to make sure that everyone stays under $5000. You should only allow $3336 ($5000-$1664). This keeps him under your company limit, and keeps him under the IRS limit. If he had not been honest and up front with you and elected the full $4992, thereby getting more than $5000, he would end up paying tax on the amount which exceeded $5000 when he goes to fill out his Form 2441 for 2002.