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jslorber
New Member

Is there an income limit pertaining to the maximum amount that you can contribute to a dependent care flex spending account?

We are married, filing jointly.  I know that the new maximum amount we can contribute to a dependent care FSA is $10,500.  Is that regardless of our AGI?  Last year our AGI was over $200k.  Thank you!
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2 Replies

Is there an income limit pertaining to the maximum amount that you can contribute to a dependent care flex spending account?

there is no AGI or taxable income limit..   

please note

DC-FSA participants cannot claim the Internal Revenue Code's child and dependent care tax credit for expenses paid through a dependent care FSA, as "double dipping" is not permitted.  

 

there have also been changes in the C&DCTC

The credit is fully refundable, and the maximum credit percentage increases to 50 percent.

The credit percentage gradually phases down to 20 percent for individuals with incomes between $125,000 and $400,000, and further phases down by 1 percentage point for each $2,000 (or fraction thereof) by which an individual's adjusted gross income exceeds $400,000, The amount of expenses eligible for the credit increases to $8,000 for one  Qualifying individual and $16,000 for two or more qualifying individuals (so the maximum credits would be $4,000 and $8,000).

what this means is some taxpayers will be better off maximizing their DC-FSA while others would benefit off paying the expenses directly.

 

Is there an income limit pertaining to the maximum amount that you can contribute to a dependent care flex spending account?

With an AGI under $125,000, the credit is a much better deal and then the FSA, because the credit is 50% and the FSA will save about 35%, in combined federal, state, Social Security, and Medicare tax.  However, at higher incomes, the credit percentage is sharply reduced, while the tax savings stays the same.  At an AGI of more than $200,000, the credit is capped at 20%, while an FSA will result in savings of 35% or more, depending on the state income tax rate.

 

There is no income limitation to contributing to a dependent care FSA. The only limitation I know of happens if you are an owner of the company with more than a 2% ownership share.

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