Tax question: dependent care expenses - any tax experts out there?

[knowerofnada]

So...I'm thinking ahead to open enrollemt for my company benefits. I am wondering about the dependent care spending account, and in general, dependent care expenses. The IRS says you can claim preschool costs for children below the age of kindergarten. Seems clear enough to me. But then they go on to imply that it can't be a purely educational type of thing just for the sake of education, but they don't come right out and say this. For example, here is an example given by the IRS for a qualified expense:

"You take your 3-year-old child to a nursery school so you can work. The school provides lunch and a few educational activities"

Ok, so what if it's a totally educational based preschool? We are enrolling DD in a Montessori preschool and it's all about education, it's not daycare at all. We work, but my mom currently watches both girls at our home. She will continue to watch the youngest, but the oldest will be attending this Montessori preschool.

This Montessori preschool would be the only possible thing we could use the dependent care spending account for, so if I can't use this as an expense, I'm going to be really screwed. So it's really important that I get this right!

Thanks!

[mightymoo]

We use the dependent care FSA for our kids Montessori half-day preschool, its not a problem. We do it even though I'm a SAHM. I do occasional work, so we do it anyway just in case, even though last year I didn't earn any income, so we end up having to pay taxes on the money in the end anyway - and its still not a problem. You just have the preschool sign the reimbursement form, or submit receipts, as long as they are a qualified preschool and have a tax id, you are good to go. (As part of our taxes we pay the tax on the $5K becuase I didn't work)

What the IRS cares about is that the preschool is a qualified provider and that you earned over $5K of income (e.g. both parents earned income) during that time. The FSA provider polices whether you get your money back, and generally they just care that you've got their form filled out properly - our form from ADP has literally only my husbands info, and a section to fill out how much you spent and during what time period and for what dependant and a place for the school to sign (or you attach receipts). I'm almost 100% positive we did not have to tell the IRS anything about the preschool.

This year (2008) is the second year we've done this with no problems.

[rebeccalynn]

What the pp said - IRS differentiates purely educational as you are not working and do not need childcare for that child not if it is a structured vs non-structured environment. I personally would argue that the IRS should not care about night shift vs day shift work b/c if a parent is working night shift then they could argue that they still need to sleep and they are just swapping the work/sleep order.

[mightymoo]

Originally Posted by rebeccalynn

What the pp said - IRS differentiates purely educational as you are not working and do not need childcare for that child not if it is a structured vs non-structured environment. I personally would argue that the IRS should not care about night shift vs day shift work b/c if a parent is working night shift then they could argue that they still need to sleep and they are just swapping the work/sleep order.

I don't think they do care, at least nothing in what I've filled out would ever tell them that.

[Smithie]

I have never had any problems using my dependent care account for a preschool that I consider educational (including a Montessori). All the IRS cares about is that you are officially, taxably, W-2ably employed, and they certainly won't be matching up your working hours with your kids' schedule!

[knowerofnada]

Thanks so much everyone!! I forgot to mention it was a half-day preschool, which is another mark against the "this is child care I need in order to work" thing, but another poster answered that anyway.

Someone mentioned the school would have to participate in this and have some tax ID? Why would this have to be the case? So anyone could refuse to allow you to claim their services?

[mightymoo]

Originally Posted by knowerofnada

Thanks so much everyone!! I forgot to mention it was a half-day preschool, which is another mark against the "this is child care I need in order to work" thing, but another poster answered that anyway.

Someone mentioned the school would have to participate in this and have some tax ID? Why would this have to be the case? So anyone could refuse to allow you to claim their services?

All schools have tax ids, I would be really surprised if they didn't, I believe its part of being certified as a preschool. The purpose is to prevent you from defrauding the IRS - you pay into the FSA, the company that manages the FSA makes sure you are sending your child to an actual preschool - the Tax ID is part of that verification.

I'm not sure what you mean by the last question. They need to sign the form, (or you send in receipts) but I don't know why a school wouldn't unless you really didn't send your child there, its part of being a preschool.

[knowerofnada]

Mightymoo....I guess it just threw me that I'd have to "make sure" I could claim the preschool, because I've asked soooo many questions to the directress already in trying to make 100%sure this place was the perfect fit for DD, that the thought of bothering her with anything else is embarrassing lol. Not that she'd care, she is super wonderful, but still...

[polyhymnia]

Originally Posted by knowerofnada

Mightymoo....I guess it just threw me that I'd have to "make sure" I could claim the preschool, because I've asked soooo many questions to the directress already in trying to make 100%sure this place was the perfect fit for DD, that the thought of bothering her with anything else is embarrassing lol. Not that she'd care, she is super wonderful, but still...

try asking the preschool director if they have families currently claiming using this fsa, i bet they do then you'll know it's eligible.