Claiming DCFSA AND Dependent Care Tax credit?

[shooter68123]

My daughter and son-in-law have an AGI of $85K.  My daughter paid 4999.80 into a DCFSA account.  It is reflected in box 10 of her W2.  It all came out of her pay, her employer does not contribute to the DCFSA, and her employer does not re-imburse her for the amount she paid in.  She used all of it to pay for daycare.  Her total daycare bill for the year was $27,121.   When she plugs in the total $27K in daycare expenses for the year, TT indicates she had $5K in eligible dependent care expenses, it subtracts $5K in dependent care benefits from her W2, leaving her with $0 listed for her child and dependent care tax credit.  Does that sound correct?  Trying to determine if it's better for her to contribute to the DCFSA or just pay it all out of pocket and get the child and dependent care tax credit.  

[Bsch4477]

The Box 10 amount is already reflected in Box 1 so that is a pretax amount. Therefore you can’t also receive the dependent care credit. The FSA is often better than the credit because you pay less in Medicare and social security tax and might help with other credits since it lowers your AGI. 

[shooter68123]

Thanks for the reply.  I went back and looked at this again and it still doesn't make sense.   On my daughter's W2, her block 3 SSA wages were $39765.42. She contributed 1584.83 into a 401K.  Her box 1 wages are $38180.59.  This looks correct in that her 401K contribution was deducted from her SSA wages and reflected in block 1.  Block 10 of her W2 shows the 4,999.80 cents she put into her DCFSA.  Her employer did not contribute to this and did not provide on site childcare.  She used it to pay daycare. I don't see where she recvd any "pre-tax" benefit from her DCFSA in block 1 of the w2 and form 2441 shows her recving no dependent care credit because the $5000 DCFSA entry in block 10 being more than the $3000 limit.  If you remove the $4999.80 from block 10 of her W2 she recvs a $600 dependent care credit based on the AGI being over $43,000 (combined with her husband) and her dependent care deduction being based on .20 x $3000 = $600.  It looks like the DCFSA cost her a $600 daycare credit. 

More info:  Their joint income was $88877.80 (combined totals from box 3 of W2s).  They contributed $3338.52 into traditional 401Ks which resulted in box 1 wages on their W2s adding up to $85539.28.  The recvd the $27,700 standard deduction for a taxable income of $57840.00.  They owed $6499 in taxes, but recvd the $2000 child tax credit, leaving a $4499 tax bill.  They paid $3961.20 in fed taxes thru the year.  Leaving $538 in taxes due. 

I Just don’t see where she recvd any benefits from putting $5K into a DCFSA.  What are we missing? 

[shooter68123]

I think I figured it out.  The $5K DCFSA and $1700 HSA were deducted from her gross earnings resulting in a lower SSA wages in block 3.   The gross earnings were listed in fine print in the top right of the W2, outside of any of the blocks on the form and we were overlooking the info.  Appreciate your time in responding.

[Opus 17]

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@shooter68123 wrote:

I think I figured it out.  The $5K DCFSA and $1700 HSA were deducted from her gross earnings resulting in a lower SSA wages in block 3.   The gross earnings were listed in fine print in the top right of the W2, outside of any of the blocks on the form and we were overlooking the info.  Appreciate your time in responding.

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That's correct.  The dependent care credit can be claimed on up to $3000 of eligible expenses for one child or $6000 for two or more children, but the $5000 DCFSA benefit reduces that amount.  So if she only provided care for one child, the DCFSA is all there is.  If she paid for care for 2 children, she would have had $1000 of additional expenses to apply to the credit.

The tax benefit of the FSA is that your box 1 taxable income is reduced, so you pay less income tax. (Instead of listing all your income and having a deduction or credit, your income is reduced from the start.) The FSA benefit is better for anyone making more than about $40K, because it reduces taxable income and also reduces Social Security and Medicare tax.  The credit is worth 20% of expenses, but the tax savings are worth between 20% and 40%, depending on your overall income and state income tax rate.