Dependent Care FSA Non-Discrimination Testing and FSA payback

Income and Expense

I have been maxing out my DCFSA for a few years and this is the first year that my organization has failed non-discrimination testing, so I am a little out of my element. I understand they are cutting off my contributions from here and it seems like they are depleting what has accrued and is sitting in my DCFSA and will be giving it to me taxed on my next paycheck. There is a whole different section though on potentially paying back what I was already reimbursed for the plan year ($2500) minus what is allowable to be tax advantaged ($112), so $2388, vs just wait it out and at some point the organization will tax me for it by the end of the year. Ran it through chatgpt who say that it would be most advantaged to just let it ride and pay taxes later.

Folks who have gone through this, is that what you did? And if I anticipate that this might happen in future years, should I be doing anything different, like trying to get reimbursed immediately once funds are available in the DCFSA? Previously was lumping into two payouts per year.

Edited to add that our fiscal year is July-June, not the calendar year, so this is the result of their mid-year check I believe

Posted Apr 1, 2026, 8:38 PM UTC · edited

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