Taxable dependent care benefits (Dependent Care FSA) in Federal and NY state while resident in NJ

[celcoco]

work in NY, non-resident in NY, resident in NJ.  few questions, regarding the Dependent care FSA (let's say 5K). 

in payroll, the firm is basically deduct the DCFSA contribution and then calculate the tax afterward

1. it seems in turbotax federal tax, it added back the 5K as regular income in additional to W2 box 1. when one spouse is not working (filling MFJ). Is this correct?

2. another more tricky thing is assuming above one is correct, now the NY state is only consider that 5K as part of income. Is this correct? if not, how do I adjust it in the turbotax desktop, didn't find the right now. 

furthermore, because of missing 5K + other small different, the NY state tax is using % ratio to calculate the income from NY to Federal, this is Obviously problematic. the 5K technically is from firm which needs to be considered as NY income. how come, we do payroll / (payroll + 5k + other non-NY income) as the ratio income. 

because this ratio is small resulting a big refund in tax. please advise this is expected. If it's not how to adjust

3.  can we claim itemized deduction in NY when using standard deduction in NY

4.   (

[MaryK4]

If you have dependent care benefits through your employer, your spouse does not have to work- that condition only applies of you are claiming the Dependent Care Tax Credit.  You do have to enter the Dependent Care expenses in the Deduction & Credits section.  This amount should not be included on your New York tax return- but if it is included on your W2 Box 1. TurboTax will transfer that amount to your New York return.  You can choose to itemized New York deductions.

[celcoco]

the dependent care FSA benefit showed up on W2 Box 10, not showed up in the W2 Box 1 and I didn't claim the child/dependent care credit in the Deduction&Credit session. 

1. However, the 5K pre-tax contribution dependent care FSA now is added back to the gross income for Federal tax. is this correct, if not, how to fix

2. Turbotax is not transferring this 5K as income in NY state resulting in the NY income is 5K less than federal such that it is calculating the ratio of tax much smaller

[ShirlynW]

Yes, it is correct. Since it is pre-tax dollars and it was not used for daycare, it is adding back to your gross income and taxed. Yes, that is also correct for the 5k not to be included in the NY income. You still can itemize on your NY return.