Child and Dependent Care Credit Error

[Hannahbeau]

This is ridiculously confusing and just goes to how out of touch the tax code is with what childcare costs. Daycare centers in my area are like $20K a year. So yeah, I've also been stumped on this one and the tax pros could be a bit clearer on the IRS "logic." But basically if you put $5K for a single kid into your FSAs, you get no dependent care credit. We're all sitting there going, well, I spent $20K, subtract the $5K, there's still $15K - why can't that go towards this $3000 credit? The answer is they are saying that you already got a benefit for that kid via pre-taxed FSA dollars that were equivalent/similar in taxable value as the $3000 credit, so now you get nothing. All the wording is irritating as heck, but whatever.

[rjs]

@Hannahbeau 

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@Hannahbeau wrote:

they are saying that you already got a benefit for that kid via pre-taxed FSA dollars that were equivalent/similar in taxable value as the $3000 credit . . .

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It's not a $3,000 credit. It's $3,000 of expenses used to calculate the credit. The actual credit, which is the actual reduction in your tax, is a percentage of the expenses, on a sliding scale depending on your income.

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@Hannahbeau wrote:

. . . so now you get nothing.

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You don't "get nothing." You get $5,000 subtracted from your taxable income. The actual tax benefit of the FSA also varies depending on your income, because it depends on your tax bracket. But an FSA for $5,000 of expenses gives you a greater tax benefit than the child care credit for $3,000 of expenses.

[brt232]

If this is correct, it is misleading that the page where you enter your total care expenses says "You have $X of employer-provided care benefits. In order to receive this credit, your expenses below must be more than this amount."

In my case and the cases in this thread, the total amount paid for dependent care is more than the employer-provided care benefits as they only cover a portion of expenses. That would lead users to expect that they are eligible up until it says you are not at the end. Then when you click "Explain Why" it says "Hmm... looks like this explanation isn't available right now."

[lkenczyk]

agree 100%!  either there is an error in turbo tax's calculations, or they need to correct their language on the website!

For some reason, every expert is ignoring our simple math question:

$12,000 paid for care

$5,000 FSA used

$7,000 remaining - can any of this $7,000 be used in calculating the dependent care credit?  not double dipping, as these $7,000 have not been used in a calculation yet.

I am going to start a filing with H&R Block to see if they come up with the same numbers!

[lkenczyk]

@Hannahbeau you are right on the money!  

[AmyC]

I think looking at the actual tax form may help. I went through and highlighted where the dependent benefits go on the form. The red is for actual expenses. Please take a special look at the bottom section where it says to claim the credit. 

Line 27 is either $3,000 or $6.000

Line 28 will be your FSA expenses.

Line 29 subtract. If zero or less stop.

Line 30 actual expenses

Line 31, smaller or line 29 or line 30 for credit.

@brt232  @lkenczyk 

I think Congress needs to update allowed expenses for childcare.

[lkenczyk]

thank you @AmyC  this clears up the confusion we all have.  

earlier in this chat string, you'll see Turbo Tax language that is misleading, saying you can use funds over what was counted for the FSA, which is why we were all confused.  That and another website (smart asset) hints that you can reap a benefit even after you've fully taken the $5,000 FSA benefit

[brt232]

@AmyC  Thank you. I think I understand why after a previous link to IRS Publication 503. Just noting that the actual TurboTax interface leads you to think otherwise and should probably be updated. Also the Explain Why section so that its clearer within TurboTax and users don't need to go to the forums to understand.

[AmyC]

If you have 2 kids and are claiming $6.000, then you would have a $1,000 paid towards child care to calculate the benefit ranging from 20-35% for a credit of $200- $350.

Input is appreciated and the program gets better each year.

@brt232  @lkenczyk 

[Montana Mom]

Having the same issue. For some reason employer reported they had 5k in contributions in box 10 on w2, actually increased my taxable income showing as income. Then now in the dependent care section it is showing I am not eligible for the dependent care credit. We spend $10,120 total on childcare for one dependent in 2022 and used 5k from our own self paid contributions into a dependent care account. Just want to be able to get the credit for the remaining $5,120. 

[DawnC]

If you only had one child, you cannot take the credit.   The credit is $3K of expenses for one child or $6K for two children.    You are correct that when you enter the Box 10 amount ($5K), your tax goes up, because you have not entered the provider information yet.   After you enter 5K worth of qualified expenses, that tax is removed.   You got $5K of tax-free income from your FSA, so there is no credit left to take for the dependent care credit.    You actually got more of a tax break (a $5K deduction) whereas if you did not have that, you would have been able to take a credit for only $3K Dependent Care Credit.    @Montana Mom 

Key Takeaways from the credit--

• If you paid someone to care for a child who was under age 13 when the care was provided and whom you claim as a dependent on your tax return, you may qualify for the Child and Dependent Care Credit.
• You also may qualify for the credit if you paid someone to care for your spouse or any other person claimed as a dependent on your return, if that person can't take care of himself or herself and has lived in your home at least half the year.
• To claim the credit, you (and your spouse, if you're married) must have income earned from a job and you must have paid for the care so that you could work or look for work.
• You can claim from 20% to 35% of your care expenses up to a maximum of $3,000 for one person, or $6,000 for two or more people (tax year 2023).

[Critter-3]

FYI ... ignore the Refund-O-Meter until you are completely done with the return. The amount will fluctuate as you complete the interview process and is ONLY correct when you are filled in all the screens and have corrected all the errors in the REVIEW tab.