Turbo includes an amount of "dependent care benefits from an employer" in its calculation of my income. My employer did not provide dependent care benefits. Glitch?

[xmasbaby0]

Look at box 10 of your W-2.  What does it say?

[benjamin-fryer]

Box 10 says $4,583.26, which I see is exactly $3,000 more than the amount that Turbo is considering "dependent care benefits from an employer" (= $1,526). I contributed to $5,000 to a dependent care FSA. 

[BillM223]

Box 10 is the amount that the "employer" contributed in dependent care benefits. Yes, this is confusing, because you agreed to the contribution to the FSA to do this. However, it is listed as dependent care benefits from an employer, because the employer contribution and your contribution through payroll deduction are treated exactly the same - removed from Wages in box 1 on your W-2 before it is print.

The $4,583.26 that was in Box 10 is eligible to be used for paying for dependent care. But since this amount is tax-advantage (removed from your income), any amount that you did NOT spend on child care must be added back to your income.

Did you indicate that you spent $3,000 on child and dependent care coverage? Then this result pf $1,526 being added to your income makes sense.

However, I agree that there are some issues here that you will want to investigate:

1. Did you really agree to contribute $5,000 to your FSA? If so, ask your employer why box 10 had only $4,583.26.

2. Did you have only one child that you could have spent the FSA money on?

3. How much money did you actually spend on the child or children? I have to assume that if you set aside more than $4,000 for this, you must have spent more than $3,000, but TurboTax is acting like you told it that you spent only $3,000 with the rest being forfeited as unspent.

[benjamin-fryer]

Here's TurboTax's explanation of why the $1,583 is being added as taxable income: "Since your $11,772 in care expenses wasn't enough to use up the $4,583 you contributed to your employer's dependent care plan, your Child and Dependent Care Credit is $0. The $1,583 of unspent care benefits will be added to your W-2 as taxable income."

This makes no sense to me. The program is treating $11,772 as a smaller amount than $4,583.

[BillM223]

Ah, more information is always helpful!

First, please note that we are talking about two different things here: the Child and Dependent Care Credit and a dependent care FSA.

These two things interact but are separate.

"your Child and Dependent Care Credit is $0. " - the credit is based on how much you actually spent out-of-pocket on child and dependent care, with a maximum of $3,000 for one child and $6,000 for two or more children.

Often, taxpayers with a dependent care FSA can't get the credit because they don;t spend anything out-of-pocket until they exceed the $3,000 limit for one child. (Two children is another story).

The catch is that the out-of-pocket expenses must be exactly that, out-of-pocket. Funds from your FSA cannot be used towards your credit.

OK, let's see if I have this right:

1. Box 10 on your W-2 has $4,583 

2. You have one child who qualifies as a dependent for the FSA and the credit (i.e., under 13, your dependent, etc). P.S. if you have two qualifying kids but spent money on only one, that's OK, you still report two kids and get the higher limit.

3. You told TurboTax that you spent $11,772 on child care.

4. You spent $4,583 from your FSA and the balance of the $11,772 out of pocket.

Do I have that all right? I feel like I am missing something...

[benjamin-fryer]

Bill, thanks for clarifying the difference between the Child and Dependent Care Credit and dependent care FSA.

You have all the facts right. I have one dependent child, and I spent $11,772 on his childcare, of which $4,583 came from my FSA; the remaining $7,189 was out of pocket. 

(I still have to clarify with my employer why my W-2 says $4,583 instead of the $5,000 that I believe I contributed, but that's a side issue.)