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Does an elective 401k deferral reduce earned income for Dependent care Credit?

I have an earned income well in excess of any minimums, but my wife through our S-Corp had wages of 8k. The full 8k was subject to Social Security and Medicare, but she electively deferred 6k to a 401k so box 1 only shows 2k.

For the purposed of qualifying for dependent care tax credit would the wages utilized be the 8k that she paid social security medicare or the less post 401k 2k?

2 Replies
Rachel_W
Expert Alumni

Does an elective 401k deferral reduce earned income for Dependent care Credit?

Yes, an elective 401(k) deferral reduces your earned income for the calculation of the Dependent Care Credit.  The wages utilized for your wife's earned income is the amount reported in Box 1 of her W2, $2,000.

Does an elective 401k deferral reduce earned income for Dependent care Credit?

Follow up question involving tax planning for next year. We have an S-Corp and currently we put all medical/dental/HSA for our family on my W2 which inflates my box 1 by around 20k I then take the an above the line deduction. If for next year I put some of those benefit on my wife's W2 to keep her box 1 above 6k would that be okay?
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