topic Dependent Care FSA & Child Care Tax Credit in Deductions & credits

Dependent Care FSA & Child Care Tax Credit

piersm2 — Tue, 19 Nov 2019 16:05:01 GMT

I am trying to determine if I should opt in for my employer FSA. Our current childcare is $12,480 per year. With the max FSA, we would have $5k towards daycare. Since the tax credit caps at $6k for two kids, would I be able to use both the FSA and max out the tax credit?

Re: Dependent Care FSA & Child Care Tax Credit

xmasbaby0 — Tue, 19 Nov 2019 17:05:06 GMT

Since you have two children you can get up to a $6000 childcare credit. Your $5000 FSA + $1000 childcare credit will max out the amount of credit you can get on you tax return. It is not $5000 + $6000, if that is what you mean.

Re: Dependent Care FSA & Child Care Tax Credit

TomD8 — Tue, 19 Nov 2019 17:15:50 GMT

You cannot use both tax benefits for the same expenses.

If you have two or more eligible dependents receiving eligible care, you may set aside up to $5,000 in a Dependent Care FSA and claim $1,000 of the child and dependent care tax credit. The Child Care Tax Credit will only be applicable on the $1,000 that was “unreimbursable” from your FSA.

To clarify: The actual tax credit doesn't cap at $6K. With two qualifying kids, you can use up to $6K in allowable expenses to calculate the credit. The actual credit is 20-35% of your allowable expenses. Your applicable percentage depends on your AGI.

Re: Dependent Care FSA & Child Care Tax Credit

Anonymous — Tue, 19 Nov 2019 18:01:53 GMT

the dependent care credit is not $6,000. that amount is the maximum amount of expenses that qualify.

without an FSA, a maximum of $6,000 of expenses would qualify. the credit ranges from 20% to 35% of these expenses based in AGI (adjusted gross income). you can review for 2441 to see what rate you qualify for. (line 8 on the form) https://www.irs.gov/pub/irs-pdf/f2441.pdf

with an FSA, your taxable wages would be reduce by $5,000 . this $5,000 would reduce your maximum qualifying expenses to $1,000. again the credit rate applied would be based on you r AGI

by the way both you and your spouse need earned income to qualify for the dependent care credit. and if their earned income is lower than either the other spouse or the qualifying expenses that's what used to calculate the credit. it is even possible that if one spouse has little earned income part or all of what went in to the FSA would be taxable

Re: Dependent Care FSA & Child Care Tax Credit

piersm2 — Tue, 19 Nov 2019 19:14:53 GMT

So seems that there would not be much of a benefit to flex the money then.