Health/Dependent Care Spending Accounts

[InDenial]

I'm negotiating a divorce with my STBX. It's also time to enroll in benefits for next year.

In the past we set aside money for both health and dependent care into an employer-administered account. Both STBX and I have this option with our employers. The money set aside is taken out of my paycheck (or his) BEFORE taxes. Then it is reimbursed directly to me (or him) when we submit a receipt.

I have an agreement with my STBX to share childcare and medical care expenses.   Our divorce isn't final, but he's already paying child support, medical and childcare.

To make it concrete: suppose that I know I will pay $2000 in childcare next year. So I can sign up to have 2000 taken out of my paycheck pre-tax.  This will save me $2K times my-marginal-tax-rate in taxes.  In the past, after I paid 2K to the childcare provider, I sent in a receipt, and the plan sent me back 2000.

However now my STBX has agreed to reimburse me 1K for a 2K expense.

Anyone have experience or advice on how to handle this?

[TC]

No real experience or solid thoughts on this....first thing that comes to mind though is that he is trying to take the position that he is responsible for 50% of childcare, which is standard in most states I have dealt with.  Just a thought.  No idea how that plays into your account withholding though...never dealt with anything like that.

TC

[Wolfy]

InDenial
I am in the same situation. I have the health care pre tax thing at work. My ex and I agree to pay 50% (each) of the costs for the kids. I send in the reciepts. On the forms where you list how much money you are requesting for each expenditure I list 50% of the cost. I had talked to my HR person and that is what she wanted done. My es also does the same thing. So when you plan how much money to set aside figure what your dollar amount is for the 50%. So if you and your stbx figure you will both spend a total of $2000 you would have $1000 withheld for that account. The only thing in my divorce papers are that my health expediture is mine to use and that we agree to pay 1/2 of the costs for the children. I hope I answered your question.

[livealittle]

you guys should probably coordinate paying for the childcare out of your pre-tax accoutns with who will be claiming it on who's taxes for 2009.


you can't each claim 1/2 a kid, so you guys should figure out a way to split it up.  my .02

[InDenial]

LAL: Good point about who is claiming the children as dependent on the tax form!!   I want to claim both children, as I have them over 50% of the time. This is in accordance with my understanding of IRS tax rules.

(Don't shed any tears for him: I wanted equal time custody, no child support, everything split down the middle. He refused.  He chose to move away to be close to his friends and watering holes rather than stay close to his children.)


Wolfy: Your answer makes perfect sense to me, sounds like what I'll probably do.


TC: I'm not quite sure what you were trying to say. Are you suggesting that he also put aside money for 1/2 the cost? Kind of like what Wolfy does? To clarify, our state calls for parents to split responsibility for childcare expenses according to net incomes. In my case that works out to close to 50% so that's what I used in my hypothetical.

This may be problematic for him to put aside money, as LAL points out, if I don't agree to let him claim a child as dependent.  Or maybe he can still do it since he does have to pay a share of childcare? I wonder if there is any IRS publication on it. Oh well, I guess that's his problem, not mine.

[Wolfy]

With 2 kids we each claim one each year and alternate the youngest until he can't be claimed anymore. Be aware that (in Minnesota) whoever has the children 51% of the time (or greater) gets to claim "head of houseehold on the tax forms. I found out my ex gets an extra $2000-$3000 that way. Wish I had thought of that before the divorce papers were signed.

[livealittle]

the IRS has lots of information on determining who gets to claim the child/ren and such.

if you guys can get along well enough to work it together, figuring out how to get the biggest tax break and filing it using it that was would put the 2 of you paying the least amount of tax would be the best way.

with kids you are never going to be able to split everything straight down the middle anyway - I gave son $1 this morning, you owe me 50 cents - is just crazy and totally unrealistic.

keep in mind the IRS rules trump your divorce decree every time - meaning all things equal and you both claim the children, the one with the highest AGI gets the deduction.  It's best to have it spelled out in the divorce decress as to who gets the exemptions - mine says I get them each and every year beginning in 2005. 

anyway, tax implications are something lots of people overlook when getting a divorce.  good luck.

[InDenial]

Yesterday I re-did our taxes from last year to get a feel for whether it's cheaper to be married or single as of Dec. 31st. Surprise, but in our tax bracket there is still a hefty "marriage tax". Ha ha, we should have gotten divorced years ago.

Turbotax told me to file head of household. Being divorced appears to save both of us money on taxes, but saves me more as Wolfy points out.

We make nearly equal incomes, so we both have use for the deductions.  Our mediator just brought up the deduction thing and asked what would go in the divorce decree, so he is on top of things.

(I understand in some cases the CP makes very little money, so derives very little benefit from the deductions. In those cases it could make sense to give all child deductions to the NCP in exchange for more child support.)

I found the IRS publication for divorce online here: http://www.irs.gov/pub/irs-pdf/p504.pdf  (If that link isn't good anymore, try going to irs.gov and using the search term "divorce".)

STBX will have less than 50% custody, so he can't take a child deduction unless a sign a form allowing it. So it's definitely to his benefit to try to have that put in the divorce decree, that I sign such a form.

[livealittle]

that is form 8332 and you can fill it out for one year or multiple years.  I recommend never doing more than one year at a time - no one knows what the future holds and putting something in writing for all future years just seems like s non-prudent thing to do.