10% discount provided by employer for a daycare chain and impact on dependent care tax credit

[yashK]

Hi

I work for an IT company and it provides 10% discount to the employees for a famous Daycare chain. As a result, we get 10% discount on the weekly fees. We dont use a FSA account. Are we eligible for the $3000 dependent care tax credit or do we need to remove the total yearly discount from $3000 while calculating the dependent care tax credit

[NCperson]

it is based on the actual cash you paid.  the tax credit is based on the amount you paid for dependent care, not to exceed $3000 times a percentage that is based on your income.  So enter the actual cash you paid and TT will do the rest. 

[yashK]

We do not have fsa or hsa. Filling as MFJ

Our AGI is around 250K

After discount, we paid around $18K for daycare for 1 kid.

1. We are eligible for both $2000 Child Tax credit and (20% of 3000 = 600) Child dependent tax credit. Is this right ?

2. That 10% discount is almost 1.8k for entire year. This is just a discount for participating daycare through my employer. I just showed them my company paystubs and they added the discount to my account. But in the year statement, i can see that they have mentioned $1.8k as discount.Does it affect my eligibility for child dependent tax credit ? Is this considered as Dependent care benefit ? It does not appear on my w2

[BillM223]

Yes, if I understand you, the Child and Dependent Care credit and the two Child Tax credits are independent of each other, so you are eligible for both.

As an aside, do you have more than one child dependent? A quirk of the 2441 is that you can allow $3,000 for one kid or $6,000 for two or more kids, even if you are not paying for child care for the second kid. As the Instructions for the 2441 say, "The maximum amount of work-related expenses you can take into account for purposes of the credit is $6,000 if you have two or more qualifying persons even if you only incurred expenses for just one of them".

BTW, NCperson is correct that the $3,000 is on the net of what you paid, so you can ignore the effect of the 10% discount.

[yashK]

Hi @BillM223 

I just have one child. The reason I got confused is that in that form 2441 , there is a question
"Did you receive dependent care benefits?"
I did not have any FSA or dependent FSA account but I did receive a 10% discount in the Kindercare fees through my employer. Is that considered as Dependent care benefit.

[Opus 17]

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@yashK wrote:

Hi @BillM223 

I just have one child. The reason I got confused is that in that form 2441 , there is a question
"Did you receive dependent care benefits?"
I did not have any FSA or dependent FSA account but I did receive a 10% discount in the Kindercare fees through my employer. Is that considered as Dependent care benefit.

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A merchant discount is not an employee benefit within the meaning of the tax code.  You did not receive an employee benefit (under section 125), and you can claim the credit based on whatever money you actually paid.  

[ThomasM125]

No, not the way you described it. A benefit would be if your employer paid a portion of your child care expenses and reported that on your W-2 form. I believe what you mean is the child care provider offered you a discount because of who you are employed by, that would not be considered an employer provided child care benefit.

[yashK]

@ThomasM125This is the exact way it happened. I dont think my employer even know that I am using the 10% discount. I just asked HR and they said that I have to call directly the participating Kindercare center and confirm with them if they can provide the discount. I called the center and they confirmed that they are the participating center. They asked me for paystub and some other details to confirm they I indeed work for the employer and the discount was added to my kid's account. 
Does it mean that I can ignore this discount completely

[ThomasM125 · Accepted solution]

Yes, you can ignore it.