@shooter68123 wrote:
I think I figured it out. The $5K DCFSA and $1700 HSA were deducted from her gross earnings resulting in a lower SSA wages in block 3. The gross earnings were listed in fine print in the top right of the W2, outside of any of the blocks on the form and we were overlooking the info. Appreciate your time in responding.
That's correct. The dependent care credit can be claimed on up to $3000 of eligible expenses for one child or $6000 for two or more children, but the $5000 DCFSA benefit reduces that amount. So if she only provided care for one child, the DCFSA is all there is. If she paid for care for 2 children, she would have had $1000 of additional expenses to apply to the credit.
The tax benefit of the FSA is that your box 1 taxable income is reduced, so you pay less income tax. (Instead of listing all your income and having a deduction or credit, your income is reduced from the start.) The FSA benefit is better for anyone making more than about $40K, because it reduces taxable income and also reduces Social Security and Medicare tax. The credit is worth 20% of expenses, but the tax savings are worth between 20% and 40%, depending on your overall income and state income tax rate.
