Child Tax Credit Calculation

[Python0608]

Hi,

I paid child care for two children last year for the total of $15000. $5000 was paid through DCFSA which I contributed through my company. The rest $10000 is out of pocket. But turbotax subtract the $5000 DCFSA from my $6000 expense limit so my expense is only $1000.  I thought I can claim $6000 expense since I paid additional $10000 besides the $5000 DCFSA. Can anyone clarify this?

[BillM223 · Accepted solution]

It sounds like TurboTax is working correctly.

$5,000 is the max you can put into the dependent care FSA (Box 10 on your W-2). And $6,000 (if you have two kids) is the max you can spend in any way on child care, so the $5,000 is subtracted from the $6,000 to get $1,000. So your child and dependent care credit is based on that $1,000.

[Opus 17 · Accepted solution]

The calculation is correct. The maximum eligible expense for any dependent care benefit is $6000. If you receive $5000 through the FSA, then only the remaining $1000 is eligible for the credit.  

Note that for most taxpayers, the FSA saves much more money than the credit, because the credit is a flat 20% while the FSA saves income tax (12% or 22%), state income tax, (3% to 13%), and Social Security and Medicare tax (7.65)%.