I have a 5,000 childcare FSA, but spent ~11,000. Why can't i claim that extra 6,000 for the Dependent Care Credit?

You cannot max out an FSA and then get an additional credit. If you have 1 qualifying child, you have gotten the most benefit that is possible with a $5000 pre-tax FSA. Keep in mind that having an FSA for $5000 is usually better than having a credit based on $3000 in expenses. That $5000 in deferred income never touches your tax return.

The reason you have to enter your expenses into your return is because you need to verify with the IRS that your FSA account was used for actual qualifying expenses. Entering more than the FSA isn't going to do anything for you.

The Dependent Care Credit is limited to $3000 in expenses per child. If you have an FSA, your limit is actually raised to $5000 for one or more children. You could only get an extra credit on your tax return if your FSA was under $3000. If you had 2 children, and your FSA was $5000, you can get a credit for that extra $1000.

But, under no circumstances can you max out an FSA and get a credit on your return for one child. That is simply the law.

I've seen conflicting information on here about the FSA limit of $5,000.  It was my understanding that I could contribute up to $5000 regardless of how many children I have.  However, I've read (in the TurboTax forums) that you must pay taxes on anything over $3000 that you put in your FSA if you only have one child. Can you direct me towards IRS documentation stating otherwise?  Thanks!

@kkunkle the limit of $5,000 for the FSA is different from the $3,000 per child limit for the Child and Dependent Care Creidt. Also, the handling of the pre-tax FSA dollars is different from the handling of after-tax dollars that you spent on dependent care.

The way the law is phrased, you can apply up to $3,000 in child care expenses to the Child and Dependent Care Credit, per child, with a maximum of two children. One child, $3,000 max; 2 or more children, $6,000 max.

If you have a dependent care FSA, then the money for those expenses is taken from the FSA first. But a dependent care FSA is limit to $5,000. So, in this case, with one child, the entire $3,000 would come out of the FSA. Since the dollars in the FSA are already tax-advantaged, you cannot get an additional tax-advantage by applying them to the Child and Dependent Care Credit.

But in the case of two children, you can apply only $5,000 from the FSA to the kids. This leaves $1,000 ($6,000 - $5,000) available to apply to the Child and Dependent Care Credit. The expense over and above the $6,000 has no tax benefit.

I have 2 kids in daycare, and pay $10k a year. I have never done the FSA. Is it a better deal to do the $5k in FSA, and tax credit of $1k, or just stick with no FSA and the standard credit I normally get? I don't know how the values work out in the end. I'm at the 24% tax rate. Does $5k pre-tax really make a bigger difference than taking the standard credit for daycare expenses?

@b.barker.is you should use fsa for the 5k if your employer offers it. You’ll end up paying ~ $600 less in taxes that way because of your tax rate and fica taxes vs getting only 20% off the 6k limit for child care tax credit

@b.barker.is you should use fsa for the 5k if your employer offers it. You’ll end up paying ~ $600 less in taxes that way because of your tax rate and fica taxes vs getting only 20% off the 6k limit for child care tax credit

Isn't $5000 from FSA tax deduction not tax credit? If I have one child, and can qualify $3000 tax credit, not opening $5000 FSA would be a better deal?

@wpmmhe the child care tax credit is for 20-35% off 3000 depending on your tax bracket and not the whole $3000.

For a dependent care FSA - do you have to report dependent care expenses on the tax filing?
I want to make sure I am not double-counting since I have already been reimbursed for these expenses.

Based on this from above "The reason you have to enter your expenses into your return is because you need to verify with the IRS that your FSA account was used for actual qualifying expenses." I think you do, TurboTax doesn't seem to make it very clear to me.

Thank you

This is for the year 2017 - I am getting caught up

@Chuck123   You have posted to an old thread full of posts from several other people.  You do not seem to even be asking a question.  Do you have one?  

"This is for the year 2017 - I am getting caught up"

The above answer is  still valid for 2018.  If you have one child and a $5000 FSA, that's the only tax benefit allowed.  You can NOT claim a dependent care credit in addition.

Sorry somehow my first message went somewhere else

For my 2017 tax return I have entered all of my Childcare expenses for three children that qualify
my qualifying Childcare expenses are $20,000
initially Turbo tax is telling me that we get a $1,200 tax credit - but I know this is not correct because I will loose $1,000 of this credit because I contributed and used $5,000 to a flexible spending account for dependent care via my employer
Where in turbo tax do I enter FSA dependent care dollars so it will properly reduce my child care tax credit down to $200 by reducing the $6,000 of expenses to be consider by the $5,000 FSA deductions from my paycheck ( can not double dip ) so that only $1,000 is considered for the tax credit which in my case will be a $200 tax credit

Any help on how to get Turbo tax to do the right thing would be greatly appreciated

Here is a complete description of the process, which should tell you how the FSA contributions get excluded.

First, if you have an FSA (Flexible Spending Account) for Child and Dependent Care Expenses, you will enter contributions made to the FSA through your employer in Box 10 of your W-2.

Second, go to Deductions & Credits->You and Your Family->Child and Dependent Care Credit and click on Start or Revisit.

• Answer “Yes” to having paid for child or dependent care in 2018.
• On the next screen, check off for whom the care was paid. Note that if you have not entered the dependent yet, then the name won’t show up here (so go back to My Info and enter the dependent first). Or you can click on Add Another Dependent which will take you back to the My Info section and then you’ll have to navigate your way back to this section.
• On the next screen, you will have a chance to add any care providers that you paid. Note that care provider names will be carried over from the previous year, so be sure to delete any care providers that you did not pay in 2018.
• On the next screen, pick a dependent and care provider and enter the amount of the expense. If you have more than one child for whom you paid care expenses, enter them both. Enter the full amount of the expenses without regard to the limitations.
• On the next screen, you will be asked about a couple of unusual situations.
• The next screen will tell you the size of the tax credit (NOTE: this is not the size of your entire tax break, because it does not include the tax avoided by making contributions to the FSA; this is just the Child and Dependent Care Credit itself).

If you want to know how the credit was calculated, click on “Why do I have a $XXX Child and Dependent Care Credit?”

In short, the tax credit calculation goes like this:

1. You can receive a tax credit of 20% of child and dependent care expenses up to $3,000 for one dependent or up to $6,000 for two or more dependents.
2. However, any dollars paid from a child and dependent care FSA do not count towards the expenses for the credit, and dollars are considered paid from the FSA first before any other dollars. This is why the FSA contributions must be entered on the W-2 in Box 10.
3. Thus, if you have one dependent and contributed more than $3,000 to the FSA and spent more than $3,000, then there is no tax credit, because the entire eligible $3,000 came out of the FSA, which is already tax advantaged (it was removed from Wages in box 1 on your W-2 before it was printed).
4. At the same time, if you have two or more dependents for whom you spent $6,000 or more and contributed the full $5,000 to the FSA (which is the maximum possible), then while the first $5,000 in expenses is deemed to have come from the FSA and is therefore not eligible to be applied to the tax credit calculation, the remaining $1,000 ($6,000 maximum for the credit’s expenses less the $5,000 from the FSA) is eligible to be applied to the tax credit expenses, which results in a Child and Dependent Care tax credit of $200 (20% of $1,000).

Expenses over and above the $3,000 or $6,000 (whichever applies) receive no tax advantage.

Thanks for taking the time to explain how to get the dependent credit to calculate correctly   - That worked - it corrected my credit to $200 - I appreciate the help

Turbo tax should improve this to just simply ask the question did you contribute to an FSA and how much when you are working on the Dependent care credit - as on my actual W-2 it is blank for #10 - although I see what you are saying to go ahead and put $5,000 in the box so Turbo tax will calculate the Dependent care credit properly

Thanks again

Please ask your employer for a corrected W-2. The W-2 is reported to the IRS so this means that your tax return will not match the W-2 that the IRS has.

Also, please confirm that your employer removed the should-have-been-Box-10 amount (your FSA contributions) from your Wages in Box 1 on your W-2. If not, then you paid income tax on that $5,000 when you should not have.

P.S. Note that Box 10 contains ALL the benefits paid to or for your FSA (even if more than $5,000). But the first $5,000 of such benefits are not included in Box 1.

The IRS says: "

"

See https://www.irs.gov/faqs/interest-dividends-other-types-of-income/employee-reimbursements-form-w-2-wage-inquiries/employee-reimbursements-form-w-2-wage-inquiries 

Although the FSA Care deductions happened in 2017 I did not get reimbursed until February 2018

So would it be the 2018 W-2 that has to be amended ??

I did not have 2018 Dependent care deductions in 2018

Neither my 2017 W-2 or my 2018 W-2 has anything in it for Box 10

Since I was reimbursed in 2018 does it reduce my Dependent care credit in 2017 ??  or does it effect my Dependent care deduction in 2018 ???

As I understand it, you had payroll deductions for your FSA removed from payroll in 2017, but the FSA did not pay those child care expenses until early 2018, right?

If so, you need to ask your employer if their FSA plan contains a "grace period", that is, if the plan allows for some or all of the FSA funds collected in 2017 to be carried over to the first three months of 2018 and spent then.

If so, you recall the "unusual" situations I mentioned above near the end of the interview? Yep, this is one of them. Check the box "We paid 2018 expenses using excess contributions that were carried over from 2017." and on the next screen, you will be asked for the amount of the carryover.

If, on the other hand, your FSA doesn't give you the ability to carry over any FSA funds, then you will have to check the other situation ("In 2018, we paid for 2017 care expenses that weren't reported in 2017"), and probably have to use IRS Pub 503 (https://www.irs.gov/publications/p503#en_US_2018_publink[phone number removed]) to calculate the amount to enter (TurboTax will tell you where to go).

Then you should have a heart-to-heart chat with your HR people to encourage then to get your W-2 right the first time, and the FSA expenses paid in the proper year.

What happens if an employer overfunds a dependent care FSA account (over the $5,000 annual limit).

Is there any penalty in spending these dollars on daycare expenses?

excess FSA contributions are put back into your income on the return ... there is no penalties  and no benefits to be had either. 

After looking for days I came up to this thread and your explanation is really awesome. It's been some months already but I need to ask this... My FSA is listed in my W2 box 14, as 'FSD 5000'...

It should be in box 10 if I understood well, then I should tell my employer to correct it and put it in box 10?

Yes.  Amounts that appear in box 14 are for informational purposes only.  

If your FSA (Flexible Spending Account) was used for Dependent Care Benefits with pre-tax dollars, the amount used should appear in box 10 of your W2.  

Contact your employer for clarification.  

If you are unable to get your employer to correct it and  you're SURE that amount is  qualified Dependent Care Benefits, then enter it in box 10, instead of box 14, at the W-2 screen to get TurboTax to handle it correctly. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS. 

so we contributed to dependent spending (FSA) for 2020 through husband's work and is noted on his W-2 box 10 for $5,000.  We carried over, in the plan grace period $2,500 from 2019.  All funds were used in 2020 to pay for preschool.  So only one income and AGI is to much, so do not qualify for credit, but Turbotax is adding back the FSA funds ($7,500) to wages on line 1 of 1040 and being taxed.  Turbotax doesn't ask me to enter the child care expenses to offset these FSA payments.   I have tried to manually enter on for 2241 but Turbotax won't let me enter the numbers.  Suggestions?