No. You cannot claim the additional $3000 if you are already
claiming the amount of FSA. The IRS does not allow double-deduction. You can
utilize either the Dependent Care FSA or take the Dependent Care Tax Credit,
but you cannot take a tax credit for expenses that have been reimbursed by the
FSA.
To determine the available credit, you can consider up to
$3000/annually of child care expenses for one dependent, and a maximum of
$6000/annually for 2 or more dependents. Depending on your adjusted gross income, the maximum credit
(dollar-for-dollar offset of tax liability) is:
- 30% ($720 annually for 1 child) for those earning less than
$10,000 annually...
- decreasing by 1% for each $2000 of additional annual income
to...
- 20% ($480 annually for 1 child) for those earning over $28,000
annually.
In
other words, the
higher your earnings, the lower your tax credit
In general, those with less than a 15% tax bracket will be
better served by the Dependent Care Tax Credit. IRS Publication 503 "Child and Dependent Care
Expenses" provides full information about this tax credit
and offers worksheets and aids for performing the calculations.
Specifically:
- If you are earning a moderate to high income, and particularly
if you are filing taxes as "Married, Filing Jointly" (combining
incomes with a spouse), the Dependent Care FSA is probably more advantageous.
Reasons: Your tax bracket is probably higher than 15%, the threshold generally
regarded as the dividing point between the Dependent Care Tax Credit (best for
those earning LESS) and the Dependent Care FSA (best for those earning MORE).
- Logically, if you have 1 child, the $5000 available through the
Dependent Care FSA is probably more generous than the credit arising from the
$3000 limit imposed by the Dependent Care Tax Credit. (See section on Dependent
Care Tax Credit, above.)
- Finally, the FSA saves not only income taxes (federal and
state), but social security taxes as well. There are no social security tax
savings offered by the Dependent Care Tax Credit. (Note: Your social
security benefits could be slightly reduced by paying less social security
taxes.)
