My wife and I had our first baby in May 2010. Being what we considered to be responsible parents, we signed up for a dependent care flexible spending account, also known as an FSA account or dependent care account, through work. In this case, since we were both federal employees, it was the FSA FEDS dependent care FSA account. For those not familiar with a dependent care FSA account, they allow families to put aside pre-tax dollars for daycare and other childcare expenses, as well as other expenses related to dependent care.
For our child care expenses, we estimated it would cost about $5,000 a year, so we started a monthly allotment to ensure we had that amount in our dependent care FSA account. The benefit of the tax exemption on that money made setting up the account well worth our time and effort. That is, if we were both going back to work.
Most new families go through the big question of whether or not one of the parents should stay home with their child. We did too. After our baby was born, we had weeks of discussion about it and finally decided that my wife would not go back to work because we both preferred that our daughter be raised by us rather than in daycare.
Since my wife was in the middle of her family medical leave when we made this decision, and she would also have to use up some additional accrued leave time, this meant she would still be ’employed’ for almost three months after the baby was born. She didn’t actually work during that time; it was all leave-without-pay, sick leave, and saved up annual leave.
According to the FSA FEDS rules, one of the qualifying life events (QLEs) that allows an employee to change their enrollment in the FSA account is a change in employment status for them or their spouse. However, the effective date of the change is the last day of employment. This means we put over one-thousand dollars into our dependent care FSA account before we were able to cancel the contributions.
I contacted FSA FEDS and asked them to stop the allotment sooner, but they refused because of the rules mentioned above. We’ve also looked for ways that we can possibly spend the money in the account, but the only authorized expense related to this situation would be childcare while both parents are working, looking for work, or attending school full-time. In addition, I must point out that dependent care account rules mandate that any money left in the account at the end of the year will be forfeited.
In my opinion, there is an obvious flaw in the FSA account law that authorizes FSA dependent care accounts and it should be re-looked. The way this system is currently set up, we’re penalizing families who decide that one parent will stay home to watch their children. Lawmakers need to keep in mind that the absolute worst time to take money from a family is when they have a new baby in the house and they have just decided to forego one of their incomes so that one of the parents can stay home.