Why does Dependent Care FSA show up in box 10 on W-2?

[avjunior]

At my work I can do an FSA for health and/or dependent care.  If you don't spend it then you lose it- that's the way a FSA works.  So the FSA for health is only informational on the W-2 but the FSA for dependent care is in box 10 and counts.  Why is this?  They are both use or lose.  Say I don't spend anything from the dependent care FSA.  I've lost it- it's not income for me.  Why is it in box 10?

[DMarkM1 · Accepted solution]

The amount in box 10 for dependent care benefits is not included in box 1 (your taxable wages).  The amount is in box 10 to exclude it from box 1 and to add it to your form 2441 for the Child and Dependent Care Credit calculations. 

The amount in box 10 will show as "paid" and deducted from any child care costs, up to $6000 for two or more children, you had.  Any remaining costs of child care can be used for the Childcare credit.  

Here is a link with more information.     

[shogunn]

But then why does Turbotax add the value that is entered in box 10 back to your taxable income? This has been reported by numerous users and should not be case according to your explanation.

[MayaD]

You need to show that you paid for qualified Child and Dependent Care benefits in 2022. You must complete Part III of Form 2441, Child and Dependent Care Expenses to figure the amount, if any, that you can exclude from your income.

To enter your child care expenses:

1. While signed in to your return, Select Federal from the left menu, 
2. Go to  Deductions & Credits
3. Scroll down to You and Your Family and select start next to Child and Dependent Care Credit.

[Youzer]

@MayaD I am having this same issue. I understand your answer. The problem is that the system will not let me enter my dependent care expenses in Part III of form 2441 because I am not eligible for the dependent care credit. I am not eligible for the credit and I'm not trying to claim the credit. But I am still eligible for the FSA. But when I click the button to enter dependent care info, it asks me if I'm eligible for the tax credit, and once it sees I'm not just sends me back to the main menu.

This appears to be an issue reported by many users for the past several years.

[rt2300]

This is unacceptable for Turbo Tax to not only mess this up but to not allow us to even view our Form 2441 before we submit.  I just noticed this for 2022 taxes and the same thing happened on my 2021 return too. 

[ShirlynW]

The rules for getting the child tax credit on a 2021 tax return and now on a 2022 return are very different.  For 2021 you could get $3600 for a child under 6 or $3000 for a child between 6 and 17 even if you had no income/did not work.   That is NOT the way it will work for your 2022 tax return.  The “old” rules are back.   The maximum amount of the child tax credit is now $2000 per child; the refundable “additional child tax credit” amount is $1500.   In order to get that credit, you have to have income from working.  The credit is calculated based on the amount you earned above $2500 multiplied by 15%, up to the full $1500 per child.  If your child is older than 16 at the end of 2022, you do not get the CTC.  But you may still get the non-refundable $500 credit for other dependents instead.

For more information

If the entire amount of the FSA account is not used, it is added back to your total wages in box 1 of the W-2 and the amount is taxed. So, you don't lose it, is give back.

[ripp67]

Ditto. As soon as the Box 10 amount is entered into TurboTax, my refund amount is reduced ($5000 in box 10 reduces my refund by $1098). There is a blurb saying I might get a break for dependent care, but TurboTax NEVER lets me get to that point. It simply states we're not eligible for the credit and redirects me as soon as I say we're not full time students and we're not disabled; therefore, my pre-tax benefit is incorrectly calculated as taxable by TurboTax. I wonder how many other times it's wrong and for how many people. Sounds like a rather costly class-action lawsuit to me...especially because this is a known error and it's not being corrected. 

[AmyC]

To qualify for child care expenses to be deducted both parents on the tax return must have worked, been students or disabled. Once you enter w2s for both adults (since you noted no student, no disability) then you can enter the credit.  For the full rules and limitations on the credit and earnings, see 26 U.S. Code § 129 - Dependent care assistance programs

@ripp67 

[ripp67]

You're right, thank you very much. Even though her W2 is entered, it doesn't calculate anything until a dollar amount is put into box 1. On a much related note to the "FSA/child and dep. care credit/box 10 dependent care benefits pool," putting $5000 into/toward the FSA REMOVED the $600 credit ($3000x.2) in exchange for $732 of tax relief (at 14.64% ETR), leaving us with a net $132 savings, or .0264% on that $5000 for the hassles involved with monthly claims and tax-time grief. No one ever put that info forward, the fact that you can make more on that $5000 in myriad other ways. Instead, FSAs are advertised and sold as, "Save $1000 in income taxes on as little as $5000." Complete BS. Thanks again for pointing out that a dollar amount in box 1 for both filers will likely activate the full Form 2441 within TurboTax.