THE FOREIGN SERVICE JOURNAL | JANUARY-FEBRUARY 2024 53 cation 972, the instructions for 2023 Schedule 8812, and IRC Sec. 24 for the Child Tax Credit and Other Dependent Credit. Child and Dependent Care Tax Credit. Qualifying taxpayers with a qualifying dependent may be separately eligible for a credit for part of their child and dependent care expenses. A qualifying taxpayer is a taxpayer who earned income (not excluded under FEIE), looked for work and received earned income by the end of the tax year, or was a qualifying fulltime student during the tax year. Most MFS taxpayers will not qualify. In the case of married taxpayers, both taxpayers must meet at least one of these requirements. The dollar limits for child and dependent care qualifying expenses for 2023 are $3,000 for one qualifying individual and $6,000 for two or more qualifying individuals. Taxpayers who utilize a Dependent Care FSAFEDS (DCFSA) account to pay for qualifying dependent care expenses must still file Form 2441 to report that they used the funds for qualifying dependent care. To claim this credit for foreign care providers who do not have a U.S. taxpayer identification number (either a Social Security Number or Employer Identification Number), enter “LAFCP” (Living Abroad Foreign Care Provider) on Form 2441 in the space for the care provider’s taxpayer identification number. AFSA recommends IRS Tax Topic 602, Form 2441 and instructions, as well as Form 1040 Schedule 3 and corresponding Form 1040 instructions. For all three credits related to children and dependents, qualifying child rules can quickly become complex, especially in the case of divorce or separation. Health Care Savings Account (HSA) and Flexible Savings Account (FSA) In 2023, taxpayers covered by a self-only high-deductible insurance plan may contribute up to $3,850 to an HSA. Individuals with family high-deductible insurance coverage may contribute up to $7,750 for 2023. HSA 2023 contributions are due by the 2023 individual tax filing deadline (currently April 15, 2024). Distinct from an HSA, an FSA is a tax-advantaged account allowing an employee to contribute pre-tax wages to pay for qualifying medical expenses (as in the case of the Health Care FSAFEDS account) or to pay for qualifying dependent care (as in the case of the DCFSA account). The Consolidation Appropriation Act (CAA) signed by Congress on Dec. 27, 2020, permits FSA administrators to allow certain carryover and grace periods for FSA accounts. FSAFEDS has adopted many of these provisions. Health Care FSAFEDS (HCFSA) allows reenrolled participants for the 2023 plan year to carry over $610 of unspent HCFSA funds to the next year. The Dependent Care FSA limit for 2023 tax returns is $5,000 per household or $2,500 if married, filing separately. Readers should take note that masks, hand sanitizers, and sanitizing wipes used to prevent the spread of COVID19 are now qualifying expenses for HCFSA funds (per IRS announcement 2021-7). Additionally, the CARES Act permanently expanded the definition of qualifying medical expenses to include feminine hygiene products and over-the-counter medications purchased after Dec. 31, 2019. This expanded definition allows taxpayers to withdraw funds from HSAs or FSAs (such as the HCFSA) to pay for these expenses. The IRS also announced that the cost of COVID-19 home testing is an eligible medical expense and may be paid or reimbursed from HSAs or FSAs. AFSA recommends Publication 969, the Form 8889 instructions, and the FSAFEDS website. Deductions for Moving for a New Job and Retiring from Overseas Are No Longer Available The personal costs incurred to move to a new job (IRC Sec. 217[j]) and for moving back to the United States after retiring from overseas are not deductible following amendments included in the 2017 Tax Cuts and Jobs Act (TCJA). Only active-duty members of the armed forces should use Form 3903 to calculate and deduct moving expenses from their military moves. Visit the IRS webpage “Moving Expenses to and from the United States.” Official Relocation Under the Foreign Service Act Is Not Taxed (PCS, R&R, Medevac) All travel authorized under Section 901 of the Foreign Service Act—which includes permanent change of station (PCS), representational travel, R&R, emergency visitation travel, and medevac—is exempt from taxation per IRC Sec. 912. Charleston General Financial Services secured advice from the IRS to this effect, which is consistent with IRS guidance issued in April 2018. None of these reimbursements appear on a W-2 for State Department employees. Non–State Department employees and anyone who doubts they are traveling under the Foreign Service Act should contact a professional to determine what relocation expenses may be taxable. Personally Incurred Expenses for Home Leave and R&R Personal expenses paid by a direct-hire employee while on R&R are not tax deductible. Prior to the 2017 TCJA, lodging, food, and transportation expenses paid by the employee on official home leave were deductible on Schedule A as unreimbursed employee business expenses. The TCJA eliminated the tax deduction for most unreimbursed employee business expenses, so these expenses cannot be deducted until/if the TCJA sunsets in 2026 (filed April 2027). The Schedule A line 16 “other itemized deductions” section is not appropriate for deducting these expenses.
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