W2 Box 10 - Dependent Care Benefits

[bechicago90]

Hi.  In 2023, I contributed $525 to a dependent care flexible spending account via pre-tax paycheck deductions at my employer.  Box 10 on my 2023 W2 has $525.  But the answers to the Turbo Tax interviews and my entries  result in the $525 showing-up on 1040 Line 1e "Taxable dependent care benefits from Form 2441, line 26".  Since the $525 is included in 1040 Line 9 total income, it is taxable and therefore off-sets the pre-tax benefit of my contributions.  What am I doing wrong?  I can't figure out how to get a calculation of $0 on Form 2441, line 26.  

[rjs]

It's hard to tell what the problem might be, since we can't see your tax return. (And don't post it. This is a public web site.) A lot of requirements have to be met in order to exclude the dependent care benefits. I suggest that you go back through the questions in TurboTax, read the questions very carefully and check your answers. Review both the section for the child and dependent care credit, and also the questions in the W-2 section after you enter the information from the W-2. You could also try going through the Smart Check to see if it finds any errors.

What is your filing status? If you are married filing separately you cannot exclude the dependent care benefits unless you meet certain requirements, which TurboTax asks about in the child and dependent care section. If you are married filing jointly, a common problem is that your spouse does not have income from working (either a W-2 or self-employment), or you have not entered your spouse's income.

If you have further questions, please tell us whether you are using TurboTax Online or the CD/Download TurboTax software.

[bechicago90]

I appreciate your response.  I'm filing married jointly.  I followed your advice but form 2441 still results in $525 on line 26 and therefore it gets added to my taxable income.  My spouse is looking for work (one of the conditions that need to be met in order for DCB to be excluded from taxable income) but none of the TT questions ask about this.  It only asks if my spouse is a full-time student (being a full time student is one way to qualify DCB to be excluded).  An of course Turbo Tax know if my spouse has any income.  (this is the another way to qualify DCB to be excluded).    I think the Turbo Tax software has a problem with my situation but I'm hoping someone knows that it's not a software problem and can tell me what I need to do differently to get the DCB excluded from my taxable income.  Thx!

[rjs]

You can use the benefits for care that you paid for while your spouse was looking for work, but looking for work is not the entire requirement. In order to exclude the dependent care benefits or claim the child care credit your spouse must have actually found work and had income during the tax year. The requirement stated in the IRS instructions for Form 2441 is the following.

"The care was provided so you (or your spouse if filing jointly) could work or look for work. However, if you didn't find a job and have no earned income for the year, you can't take the credit or the exclusion."

So if your spouse has no income from working (and was not a full-time student or disabled) you are not eligible to exclude the dependent care benefits, and the calculation in TurboTax is correct for your situation.

[Opus 17]

While care provided so your spouse can look for work is considered "qualified", the dollar amount of the credit is still limited by the income of the lower-earning spouse.  If she didn't work at all, then you can't get any credit, and the amount from the account is properly added back to your taxable income. 

[bechicago90]

thx for the info!  I had the wrong impression of my employers Dependent Care Flexible Spending Account.  I intuitively thought, "Great, the pre-tax contributions to help pay for some child care".  But in reality, the tax benefit is net zero after my contributions are added back into our taxable income.  Oh well.  it seems that the dependent care benefits provide a tax advantage to married filing jointly if both spouses earn income.

[Opus 17]

"it seems that the dependent care benefits provide a tax advantage to married filing jointly if both spouses earn income."

That's the point. If only one spouse works, the other spouse presumably can take care of the child.  The credit creates an incentive (although rather small) for the non-working spouse to work if they want to, by reducing (by a small amount) the burden of childcare.  (The credit is also available if the non-working spouse is disabled and unable to care for themself, so that childcare is needed so the other spouse can work.)