My wife got $1032 (listed w2-box10) towards dependent care benefits for backup care provided by employer(not FSA). How to claim exemption for this amount in TT?

[taxqn]

My wife got $1032 towards dependent care benefits from her employer. This amount is listed in her W2 under box 10. My wife and I do a joint tax return. When I added her W2 in turbo-tax, this amount comes as taxable income. We haven't received any Dependent Care FSA in 2017 from both of our employers. Her employer paid this amount ($1032) to a third-party back-up care service provider (Bright Horizons) towards the care of our son. In addition to what employer paid, my wife had to pay $6/hr as a contribution to avail the back-up care. She availed the services for 70 hours and paid $420. My question is can we claim tax exemption for both the amounts? (the amount employer paid - $1032 & the amount she paid - $420). If yes, how to do so in Turbo-tax?

[MaryK1]

You will have to enter the Child Care expenses under Deductions & Credits.  Employer provided child care expenses are taxable if not used for child care.  When you entered the W2Box 10, TurboTax includes it as taxable but when you add the expenses paid it will not be taxed. 

[taxqn]

In this case, employer didn't pay it to us, he directly paid it to the third party company. Can i still enter $1032 as employer paid child care expense? How about the money ($420) i paid? Can i claim that too?

[MaryK1]

Yes, you want to enter the full amount ($1452) so the income is not taxed and if you qualify you may receive Child Tax Credit separately

[taxqn]

Here is what happened in this case. I was able to reduce employer's contribution(1032) from the taxable income. I got a child tax credit of ($84) for amount i paid(420). I was under the impression that i could get exemption for $420, which is not the case. Now its clear 🙂 Thanks TurboTaxMaryK1