Child and Dependent Care Credit Error

[dennehrm]

I contributed $5,000 to my dependent care FSA for 2022 and spent $12,498.00 on child day care. Turbo tax is telling me I do not quality for the child and dependent care credit. Shouldn't I be able to deduct a percentage of the remaining $7,498.00?

-My wife and I are both earning income

-We are married filing jointly

-We claimed our 1 year old as our dependent

-We make <$400,000

[Bsch4477]

Once you have used your $5,000 FSA for child care expenses you can’t use the same expenses for the child care credit. You already received the tax free benefit from the FSA so you can’t double dip. 

[VolvoGirl]

Does it say why you don't qualify?  Is it asking if you are disabled or a full time student?

Have you entered all your income yet?  Make sure you are each showing income.  Check each W2, should be assigned to the right spouse.   If you have self employment income you need to have a profit to qualify.

See the Child Care Credit for qualifications

https://ttlc.intuit.com/questions/1900643-what-is-the-child-and-dependent-care-credit

[dennehrm]

It gives me no information on why I do not qualify. It has not asked me any questions about being disabled or a full time student.

All income has been entered. 
All W2s are correctly assigned. 
No self employment income.

[dennehrm]

Yes I am unable to double dip on the $5,000 from my FSA, but what about the additional $7,498?

[rjs · Accepted solution]

For one child, the maximum amount of child care expenses that you can claim for the credit is $3,000. That maximum is reduced by the amount that you used from your FSA. The $5,000 from the FSA is subtracted from the $3,000 maximum. The result is less than zero, so you have already exceeded the $3,000 maximum for one child. You cannot use any additional expenses for the credit.

[Revere2211]

There's conflicting information on this out there on the internet. I'm guessing that this is wrong based on rjs's response:

"You can use a dependent care FSA in conjunction with the dependent care tax credit. However, the same dollars can’t count for both benefits. For example, let’s say you pay for childcare for one dependent so you can work full-time. You put $5,000 into your FSA and also pay $4,000 out of pocket for childcare.

As a result, your FSA contributions lower your taxable income. Plus, when you file taxes, you can use up to $3,000 of your out-of-pocket expenses not paid by your FSA to lower the amount of taxes you might owe."

Source: https://smartasset.com/taxes/dependent-care-fsa-vs-dependent-care-tax-credit

This is from the IRS: "If you received dependent care benefits that you exclude or deduct from your income, you must subtract the amount of those benefits from the dollar limit that applies to you."

Source: https://www.irs.gov/taxtopics/tc602 

[Critter-3]

That info is all correct and if you follow the form 2441 you will see how the FSA usage is deducted first and then if you have any expense after that you would get a credit.  Be aware that the 2021 tax year was very  different and now the rules are back to the norm.  

For instance if you had 2 kids in day care and spent  $6000(or more) then the $5000 of FSA reduces the max allowed of $6000 leaving $1000 for the credit.  

[DMarkM1]

As rjs and the IRS topic and this link to IRS Publication 503 explain, you reduce the allowable expenses limit by the amount of FSA that reduced your taxable income.  

For example, you have two daycare age children; you and your spouse both have earned income above 6,000 each.  

Your FSA benefit was 5000.  The expense limit for two children is 6000 minus the 5000 FSA, leaving 1,000.  

You paid 3000 out of pocket for child care, but only 1,000 of that can be used for the Child and Dependent Care Credit calculation due to the expense limit.  

[Seriously4]

True, but how to get Turbotax to take this............it just says zero qualified expenses.  Same problem, different person.

[Seriously4]

But he can use the remaining amount after the FSA is applied.

[BillM223]

As noted above, in terms of the FSA contribution, the maximum amount is $5,000, while for the credit, the maximum amounts are $3,000 for one child and $6,000 for two or more dependents. Any money spent on dependents over these amounts has no tax benefit.

"But he can use the remaining amount after the FSA is applied." - this is true in the limited case that DMarkM1 gave, otherwise no.

@Seriously4 

[njpardy]

I am having the same issue it appears to think that my employer reimbursed us for the childcare. But we were the ones putting the money into the account out of our paycheck pre-tax. There seems to be an error in the program that it deducts the FSA from the tax credit which appears to be wrong. For example we paid $10,800 for childcare, we have 2 children. We put $5000 in an FSA account, the program shows that we had $5800 in out of pocket expenses. ($10800 - $5000). But when you get to the screen it is showing our total eligible Dependent care credit is $6000, dependent care benefit on W2 is -5000 to our total eligible credit is $1000. This is incorrect it should not be subtracted Per the IRS guidelines and it did not occur in prior years.

[Bsch4477]

As you posted, the $5000. you put in was pretax so you already received a tax benefit. You can’t use the same $5000 again as an expense. 

[SharonD007]

The same eligible expenses that are reimbursed through a Dependent Care Flexible Spending Account cannot be counted as eligible expenses to claim the Dependent Care Tax Credit.

For two children, the maximum amount of childcare expenses that you can claim for the credit is $6,000. The maximum is reduced ty the amount that you used from your flexible spending account: $6,000 (maximum credit for 2 children) minus $5,000 (flexible spending account) equals $1,000 (total eligible credit). Once you have used your $5,000 FSA for childcare expenses you can’t use the same expenses for the childcare credit that’s why the eligible credit amount for child and dependent care is $1,000. You already received the tax-free benefit from the FSA so you can’t double dip.