Received Tax-Deductible Dependent Care from work but not in Box 10 of W-2

[CRC301]

I received a $5,000 tax-free reimbursement from a benefits account from my work (for child/dependent care expenses). My employer did not enter this amount in Box 10 of my W-2. I contacted them about it and they said that the way our benefits account works, it will not show up in Box 10 of my W-2.

When I walk-through the "Child and Dependent Care Credit" section in TurboTax, it is giving me the credit even though I really am not eligible. Should I NOT enter any childcare expenses in that section in order to ensure TurboTax doesn't give the credit? Will not entering those expenses cause any miscalculations in other areas of my return?

Thanks

[MarilynG1]

If you don't claim the Child Care Credit, the amount of the credit will not be applied to your tax, so your Refund may be a bit less.

If your reimbursement was 'pre-tax' you would subtract this amount from the child care expenses you report. 

Click this link for more info on the Child Care Credit. 

[CRC301]

@MarilynG1 Thanks for replying.

I can't just subtract the $5,000 from the expenses I'm reporting though. I paid $15K in dependent care expenses in 2020 and my company benefit account reimbursed me (tax-free) $5K. Even if I only enter $10K in expenses into TurboTax, it is still giving me the credit.

I was under the impression that the child and dependent care credit only picked up where any tax-free employee benefit reimbursement(s) left of.

I think the only way for me to ensure I don't double dip is to just tell TurboTax that I had $0 dependent care expenses in 2020. But my question is: will leaving that info out of TurboTax cause any miscalculations in any other part of TurboTax?

[KathrynG3 · Accepted solution]

Yes, you are correct. The  child and dependent care credit only picked up where any tax-free employee benefit reimbursement(s) left off. No, leaving that (tax-free employee expenses for child and dependent care) info out of TurboTax will not cause any miscalculations in any other part of TurboTax.

However, if the $10,000 you paid was after-tax, you are entitled to the Child and Dependent Care Credit. It is acceptable to still report after-tax expenses in this section. If it was paid with pre-tax dollars, then it should be removed. 

The only potential issue is that pre-tax dollars are not used for the designated expense. If the disbursement is not qualified, the disbursement should be returned.

As long as any pre-tax dollars all went for child and dependent care, there is nothing to report. Keep the annual activity for the account for your records to prove that the monies dispersed were for qualifying expenses.

For more information, see: What is the Child and Dependent Care Credit?

[someguy1987]

@KathrynG3  You mentioned “As long as any pre-tax dollars all went for child and dependent care, there is nothing to report.”

Isn’t it required to report provider SSN/TIN for child care expenses if pre-tax dollars were used from dependent care FSA? I’m in a similar situation where I’m getting care credit for pre-tax dollars. I have dependent care FSA with my company with total allocated amount of $1200 but the end of year balance was $420 which is on box 10 of my W2. So I’m getting $780 care credit even though I’ll get reimbursed full amount 

[BillM223]

"Isn’t it required to report provider SSN/TIN for child care expenses if pre-tax dollars were used from dependent care FSA?"

Yes, although I imagine the reason is more so that the IRS can track reported income by the provider.

"but the end of year balance was $420 which is on box 10 of my W2. "

Really? The amount in box 10 should have been the entire amount paid or incurred by the employer - "Show the total dependent care benefits under a dependent care assistance program (section 129) paid or incurred by you for your employee. Include the fair market value (FMV) of care in a daycare facility provided or sponsored by you for your employee and amounts paid or incurred for dependent care assistance in a section 125 (cafeteria) plan. Report all amounts paid or incurred (regardless of any employee forfeitures), including those in excess of the $5,000 exclusion." See box 10 on page 18 in the W-2 Instructions.

"So I’m getting $780 care credit even though I’ll get reimbursed full amount "

I don't see how you are getting a $780 care credit - maybe a $780 deduction, but not a credit.

If I got your story correct, your employer should have put in the total amount that you had applied to the dependent care FSA in box 10 for tax year 2020, then in the screens after you entered the W-2, you would then enter the amount carried over to next year ($420?). Is this what happened?

[Carl]

There is a dollar limit on the amount of your work-related expenses you can use to figure the credit. This limit is $3,000 for one qualifying person, or $6,000 for two or more qualifying persons.So if there are two or more dependents, it's a maximum of $6,000 still. (IRS Pub 503 page 12 at https://www.irs.gov/pub/irs-pdf/p503.pdf)

Additionally, If you received dependent care benefits that you exclude or deduct from your income, you must subtract that amount from the dollar limit that applies to you. With only one dependent if you received more than $3000 tax free for dependent care, then you don't qualify for any child care credit.

If you have two or more dependents that you paid childcare for and received $5000 tax free from your employer, then you only qualify for $1000 of the credit.

[someguy1987]

“I don't see how you are getting a $780 care credit - maybe a $780 deduction, but not a credit.”

Yea I meant $780 expenses eligible for credit.

So to clarify $420 in box 10 is correct and by end of plan year (2021)  it’ll reach $1200 which is what I allocated during enrollment. My company doesn’t just give me $1200, they take percentage from my paycheck until allocated amount is reached which is why box 10 is $420. I got hired in October 2020. I paid child care expenses out of pocket $1200 but will get reimbursed later in 2021.  So $1200-$420 is $780 in expenses eligible for credit even though I’ll get reimbursed for it

I’m thinking 2021 box 10 will be $780 ($1200 allocated amount -$420 in 2020). That extra income will be taxed and government will get money back I took this year for child care credit assuming I don’t have child care expenses in 2021. So correct me if I’m wrong taking child care credit for pretax dollars this year is fine because I will get taxed for the remaining amount next year if that makes any sense

[KathrynG3]

Not exactly. The child and dependent care account is funded with pre-tax dollars. The government will not get money back the following year because the funds are excluded from your income. But, yes, the balance in the account would be reduced because of the reimbursement. 

Your workplace will report what was contributed, not distributed, as pre-tax dollars for your child and dependent care needs on a calendar year basis, even if the plan year is based on a fiscal year, not a calendar year.

Technically, the $1,200-$420, or $780 could be used toward the Child and Dependent Care Credit for 2020 because it was paid with after tax dollars.

It would be better to only include Child and Dependent Care amounts that exceeded the pre-tax dollars invested at your workplace to avoid any scrutiny from claiming this credit.

The IRS will allow pre-tax dollars or a credit, but the same dollars cannot be used for both.

For more information, see: The Ins and Outs of the Child and Dependent Care Tax Credit - TurboTax Tax Tips & Videos

@someguy1987