In 2002, I kept untaxed $5000.00 towards dependent care at my company. I used only $700 towards dependent care. My assumption was that I will loose that money, and I did not get any refund from my company. In 2003, while filing taxes, my CPA informed me that I need to include the unused portion as income and pay federal tax on the unused amount. In effect, I lost $4300.00 and in addition $2000.00 taxes on that. If that is normal, I am not sure that dependent care expenses is a good feature. Please let me know if my CPA was correct to pay taxes on unused Dependent Care amount.

Thanks,

Shekar :(

I'm not going to answer whether your CPA is correct or not, one of the tax gurus can answer that.

However, The pretax care accounts (Health, Dependent etc) need to be used cautiously. I would never put $5K towards such an account unless I knew for a fact I would use it.

Thanks Scott. I stopped putting money into both dependent and healthcare, after my first lesson. I had planned to use it, but my daughter refused to go to the new day-care, as we moved to a different town. It may have been 2003 taxes filed in 2004 - need to check my documents.