Am I paying more in taxes by contributing to a Dependent Care FSA?

[Erickson 19]

I have 2 dependents and paid $17k in child care expenses in 2023. I contributed $5,000 to an DCFSA, and with my tax bracket at 12%, should result in tax savings of $600. I'll get an additional credit of $200 for the Dependent Care Credit (($6,000-$5,000)*20%) for total tax savings of $800. If I had not contributed to an FSA, I would be eligible for the full $6,000*20% for $1,200 in savings. Did I lose out on $400? If so, is there a way to make any adjustments? Thanks! 

[Bsch4477]

deleted 

[DawnC]

Unfortunately, no, you cannot do any adjustments now for 2023.  You can of course make changes now for this tax year 2024.   The FSA can save parents money on childcare, but the FSA will limit or eliminate the Dependent Care Credit.   In some situations, the FSA is better and in others, the credit is better.   But yes, you would have been better off to not do the FSA last year.   The Ins and Outs of the Child and Dependent Care Credit.    If you notice at the bottom of that article, it talks about using an FSA and it says ''it may save money'' - - it is not a given.  

[Mike9241]

We can't see your tax return so don't know if there would be something else affected by not making the DCFSA contribution that would increase your income taxes.  For example, what if that extra $5K in taxable income pushed that income into the next tax bracket which is 22%. Thus you would really be saving $1100 in income taxes + the $200 remaining DCC = $1300 but only get $1200 DCC so not making it would cost you $100.

however, that $5K also affects the Child Tax Credit and Earned Income credits and maybe other items as well. So it's difficult to know for sure if worth contributing to the DCFSA unless you do two returns one with everything and then the second eliminating the $5K from box 10 and increasing box 1 by $5K on your w-2. 

Taxable Medicare and Social Security wages? Not sure but I believe the $5K reduces these wages and thus these taxes that you pay if you did not make the DCFSA contribution on the $5K so if I'm right that's a savings of $5K times 7.65% or $382.50 

Nothing can be done for 2023. 

[Erickson 19]

Thanks for your comments! I didn't consider the FSA also reducing the 7.65% in taxes for FICA and state taxes of 4.65%, so it seems it was still worth it. 

[Opus 17]

Correct. The DCFSA reduces your Social Security and Medicare tax and also reduces your state income tax.  You have to be in a state with no state income tax and have an income of less than about $50,000 before the credit is more cost-effective than the FSA.