Reimbursement for expenses prior to employment

[Guest dmiller]

I was recently hired at an organization at the end of January '08 (Jan 28). Immediately upon my hire, I filled out the paperwork to take out money for childcare reimbursement. They told me my deductions wouldn't start coming out of my checks until March. I know how much the childcare is per month, and took the 12 month $ total and divided by 10 months (the number of months I will work at this organization this calendar year) and chose to have that amount deducted from my paycheck.

The childcare expense prior to my employment here has not been reimbursed by any other Cafeteria plan, and does meet the requirement that it was to allow my wife and I to work.

I have turned in the expenses for the first four months of the year. Two of them (March & April) were reimbursed. January and February were denied. They stated that those expenditures occurred before I joined the Cafeteria Plan.

I thought this was my money, and as long as the childcare expenses fell within the correct calendar (tax) year, and met the federal requirements, that I should be reimbursed.

Is this correct? Will I not be able to recoup my own money now?

Thank you for your help!

Dale

[QDROphile]

There is much more to a full analysis, but the short answer is that you cannot run expenses through this employer's plan for expenses incurred before you were an employee of this employer. The denial of reimbusement is proper.

You may be able to convince the employer to change your election based on mistake, and adjust amounts prospectively so that you do not have your pay reduced in the end more than what your 10 months of child care expense will be. However, "correction" is a very sensitive proposition because of the tax risks and I would not expect much enthusiasm from your employer.

You may have some consolation in the childcare tax credit.

[Guest dmiller]

Ouch. Not the answer I was hoping for.

What about the month (February) that I was an employee, but the deductions were not yet being taken out of my paycheck?

[JanetM]

Reimursements would begin when you became participant. Was there a waiting period or were considered covered from first day of employment? If plan has 30 day waiting - maybe to coincide with you actually getting a check if employer pays arrears - you entered Plan the end of Feb. Sorry I know that isn't what you wanted to see. QDRO reminded you there is still special tax treatment for the two months.

[QDROphile]

More bad news. Expenses incurred before you were covered by the plan are not eligible expenses, even if the expenses were incurred while employed by the sponsor of the plan. So say the relatively new proposed regulations under section 125. The proposed regulations probably only state more clearly what was already the law.

You could have been covered by the plan before the pay period in which pay reduction started, but it is unlikely.

If your plan has a grace period and you are careful about your election for 2009, you will not "lose" any of "your" money. Navigating to this result is complex (note the odd use of quotation marks), but your plan contacts may be able to help you. Also, you childcare costs may yet be greater than you expect for this year.