What happens when an individual contributes to a dependent care flexible spending arrangement over the limit?

When an individual contributes to a dependent care flexible spending arrangement (FSA) over the established limit, the excess amount is subject to income tax. The dependent care FSA has specific annual contribution limits set by the IRS, which, if exceeded, causes the excess contribution to be treated differently for tax purposes.

In particular, any amount contributed beyond the allowed limit is not eligible for the tax-free treatment normally afforded to the contributions within limits. This means that the excess amount must be included as taxable income for the year, leading to an income tax liability on that portion.

While there may be penalties or additional taxes associated with other accounts or excess contributions in some scenarios, the specific consequence here for exceeding the contribution limit in a dependent care FSA is the income tax on the excess amount. Thus, the correct interpretation for this situation focuses on the income tax obligation related to the excess contribution.