topic Dependent Care FSA + Child and Dependent Care Credit Eligibility in Deductions & credits

Dependent Care FSA + Child and Dependent Care Credit Eligibility

nicknack1 — Fri, 04 Feb 2022 21:42:31 GMT

I've read you can't "double dip" on the DCFSA and the Dependent Care Credit, but what does this mean in practice? Here's my case:

- I have one child, who is in daycare

- my AGI puts me at the 20% tier for the Dependent Care Credit on my 2021 return.

- I had $19k in eligible daycare expenses

- I had $9k in my DCFSA (switched jobs hence why it is lower than the $10.5k max)

My understanding is thus that the $9k from the DCFSA reduces eligible daycare expenses to $10k - still above the 2021 8k limit - and then my credit would be 20% of that 8k at my AGI - so $1.6k. Is this the correct interpretation of how the DCFSA and the Dependent Care Credit function together?

Re: Dependent Care FSA + Child and Dependent Care Credit Eligibility

BillM223 — Fri, 04 Feb 2022 22:42:47 GMT

The way it works is this:

You can (for 2021) put up to $10,500 into a Dependent Care FSA. This is the limit for either a Single taxpayer or for Married Filing Joint. You put in $9,000 for 2021, which appeared in box 10 on your W-2.

You can count up to $8,000 (for one child) in dependent care expenses for either the FSA distributions or the Dependent Care Credit.

You paid $19k in expenses, presumably $9,000 of which came from your Dependent Care FSA. Since this is larger than the $8,000 limit per child, you have nothing left over for the credit.

The way this works is not obvious, but this is the way it works. May I assume that this is how TurboTax calculated it for you?

Re: Dependent Care FSA + Child and Dependent Care Credit Eligibility

nicknack1 — Mon, 07 Feb 2022 20:29:00 GMT

Thanks Bill - this is very helpful, and true that this is not obvious. Do you have any links to IRS resources that explain this?

Re: Dependent Care FSA + Child and Dependent Care Credit Eligibility

AliciaP1 — Mon, 07 Feb 2022 21:26:01 GMT

Here's the IRS publication 503 about Dependent Care expenses:

Publication 503 (2021), Child and Dependent Care Expenses