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Level 1
posted Mar 17, 2023 4:41:31 PM

Bug in Child and Dependent Care Credit with FSA

I have $5000 FSA and paid $12,579 for child care. I'm expecting that I can claim child care credit from the expense 12579 - 5000 = 7579, but TurboTax says:

"Since your $12,579 in care expenses wasn't enough to use up the $5,000 you contributed to your employer's dependent care plan, your Child and Dependent Care Credit is $0."
 
Isn't this a bug? How could $12579 "wasn't enough", as it's a larger number than 5000?

0 2 237
2 Replies
Level 15
Mar 17, 2023 4:52:28 PM

There are 2 different issues. 
1. For one child you can spend up to $5000 in FSA funds. That amount was pro tax so you saved $5,000 off of your income That is the maximum you can do. 

2. Or you can claim child care credit with a maximum of $3,000 in expenses. Once you have used the $5,000 in expenses through the FSA you have already exceeded the $3,000 maximum for the child care credit and have no more expenses with which to claim that credit. You are better off with the FSA expense savings. 

Expert Alumni
Mar 17, 2023 5:11:13 PM

Indeed, as explained above by Bsch4477,  if there is only one child the limit for the Dependent Care Credit is $3000 and if it is more than one child, the limit is $6000. 

The FSA funding listed on the Form W-2 was pulled pre-tax and that needs to be reconciled with care expenses before any calculations of the Dependent Care Credit. The IRS does not give you an option to choose, it will calculate the FSA funding first. 

So even though you did not get an additional Dependent Care Credit, you did need to complete that section to reconcile that the FSA funding was used for qualified care expenses. If it is not documented, that money becomes taxable income.