Dependent care FSA when one spouse is self-employed
This question relates to a Dependent Care Flexible Spending Account (FSA) account in the USA. I'm aware that contributions to an FSA are not available to self employed persons, and not deductible if one spouse is 'stay at home'.
What rules apply to a working spouse with an employer FSA, plus a self-employed spouse? And if money is put aside in an FSA, but the final taxable income of either spouse is too low, are there penalties or forfeit funds? Self employed persons may run a profit or loss in a given year, even if working full time.
Reference documents include www.irs.gov/publications/p969/ar02.html and www.irs.gov/publications/p502/
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The FSA money is still spendable, but the deduction may be phased out unless both incomes are high enough.
The self-employed spouse can use the Publication 334 "optional method" in case of a net loss:
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