We file MFS. I put $2500 in my dependent FSA. Can my wife put $2500 in her FSA too? Will I/we be able to claim the money as childcare credit on our taxes?

Okay, why are you filing separately? It costs more taxwise than Joint..

For student loan reasons.  In order to qualify for IBR and keep my student loan payments as low as possible (I'm a public interest attorney), we have to file MFS.  5 more years to go, and we'll start filing MFJ.

Taxpayers using the Married Filing Separately status do not qualify for the dependent care credit.

In addition, funds put into an FSA for dependent care are already "pre-tax".  This means you've already gotten a tax benefit for these amounts.  Therefore, no additional credit would be allowed for the same amount.  If you have expenses in excess of the FSA and use a different filing status, then you may still qualify for a dependent care credit.

In regards to putting money into both of your FSA's, the rules say taxpayers that are filing separately can put up to $2,500 into their FSA.  This means that each of you can put the maximum of $2,500 into your Dependent Care FSA; however, you can only use your dependent care expenses one time when requesting reimbursement.

When you prepare your tax returns, the spouse that does not intend to claim the child should still enter them as a dependent and indicate that the other parent will claim the child.  This allows the child to show up in the Dependent Care Credit section for determining if you had any excess FSA benefits that may be taxable.

Thank you for your helpful response.  Just to clarify, do you mean both spouses can deposit in an FSA, even if only one of them is claiming the child as a dependent?  It sounds like from you last paragraph that even if we can, it may not be a good idea, since there could be a tax penalty?

There would not be a penalty, you just would not be able to answer the Dependent Care Credit questions to determine if any part is taxable without doing so.  This could happen if you guys had $5,000 in your FSA's and only paid $3,000 in dependent care.  That could trigger $2,000 to become taxable since you don't pay taxes when you contribute.

Post on an old thread. But, specifically, how do you, in TurboTax,

1./ When you prepare your tax returns, the spouse that does not intend to claim the child should still enter them as a dependent and indicate that the other parent will claim the child.

Thanks.

When you are filing MFS, the best thing to do is for the spouse who will not claim the child to simply delete the child or never list them in the first place.  There are questions in the interview that pertain to custody issues that are sometimes answered incorrectly by parents who are unmarried but live together, or by parents who are married but filing separately.   The interview is not structured very well in my opinion.

Thank you for the response. What you mean by "you can only use your dependent care expenses one time when requesting reimbursement."?

I'm in a similar situation: my wife and I are MFS with one daughter which will be claimed by only one of us. We each contributed $2500 into our own FSA and the daycare expense is definitely more than $5000. I understand the child credit is different than the expense deducted from our income and we will not be able to claim the credit. But regarding the expenses, are you saying we can only reimburse $2500 and what happen to the other $2500 we contributed to MFS? Are we not able to use it and is it just lost? Thank you.

Each expense can only be reimbursed by one plan.  Both parents can't claim the same day care bill for reimbursement.

Thank you Opus. I didn't mean to reimburse same expense twice. Was thinking have my wife reimburse first half year of expense and I reimburse the second half. But as I read your response below, it seems we can each reimburse $2500 however, only one person can get the reduction in income. The other person's $2500 will be add back to income, which makes it as if it is paid with after tax dollars. Did I understand you correctly? I would not lose the $2500, but just have to pay income tax on it? Thank you.

Yes, you really shouldn't have an FSA at all if you are the spouse who is filing MFS and will not claim the child as a dependent.  Since you do have an FSA, submitting the bills for reimbursement and then paying the income tax is obviously better than forfeiting the account and still having to pay the bills.

I see this is an old thread. 

Please be specific.  If I am the parent who is NOT claiming the child as a dependent, but I am the parent with the FSA account, where and how in TT do I enter the information regarding the FSA account and the expenses that were reimbursed.

As long as you are the custodial parent you can claim the credit even though you are not claiming the child as a dependent. 

You will enter the child as a non-dependent and then follow these steps in TurboTax

To Add a Childcare Provider in TurboTax Online:

1. Go to "Federal Taxes" at the top of the screen

2. Select "Deductions & Credits"

3. Scroll down to "You and Your Family" and select "Show More"

4. Select "Start" next to "Child and Dependent Care Credit"

5. Select "Yes" to "Did you pay for child or dependent care in 2016?"

6. Select "Continue" on the Add Dependents page and proceed to enter your info for the credit

For general information on the Child and Dependent Care Tax Credit visit this link: Child and Dependent Care Tax Credit

@williasp 

@MaryM428 

I've now spent several hours looking at the 2441 form (in forms view) as well as the child worksheet.  I've also gone through the interview process several times, but with no luck.

The W2 box 10 info specifying the dependent care FSA carries over to the 2441.  But there is no way I can see to input and subtract out payments made to child care providers.  So if I input the name, address etc of the child care provider and indicate the payment, that payment doesn't show up in any lines below.  I can try to override certain lines, but that will result in an error exclamation point.  No matter what check boxes I check, it seems that once I am in MFS mode, the dependent care expenses are "non-qualifying."  Again, I am not trying to get the child tax credit.  I am simply trying to zero out the FSA account so it is non-taxable.  This seems to be a bug in the program because when I read the IRS instructions, it sounds like FSA expenses can be taken if one files MFS.

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@williasp wrote:

@MaryM428 

I've now spent several hours looking at the 2441 form (in forms view) as well as the child worksheet.  I've also gone through the interview process several times, but with no luck.

 

The W2 box 10 info specifying the dependent care FSA carries over to the 2441.  But there is no way I can see to input and subtract out payments made to child care providers.  So if I input the name, address etc of the child care provider and indicate the payment, that payment doesn't show up in any lines below.  I can try to override certain lines, but that will result in an error exclamation point.  No matter what check boxes I check, it seems that once I am in MFS mode, the dependent care expenses are "non-qualifying."  Again, I am not trying to get the child tax credit.  I am simply trying to zero out the FSA account so it is non-taxable.  This seems to be a bug in the program because when I read the IRS instructions, it sounds like FSA expenses can be taken if one files MFS.

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Please don't keep creating new posts for the same issue.  If you are using the desktop program, did you find the checkbox on the line 18 worksheet for form 2441 as indicated here?

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-hi-turbo-tax-folks-i-file-mfs-and-have-a-dependent-care-fsa-as-part-of-the-fsa-i-need-to-fi/01/2047289#M192759

My mistake, if you lived together with the other parent and are filing MFS for other tactical reasons, you need to check box 18B on the form 2441 worksheet.

Incidentally, the program worked fine for me straight through from the beginning with no blocks or errors.  You may need to delete your dependent and/or your W-2 and start over.  Be careful because in the W-2 interview, you will be asked about your box 10 dependent care benefit, and be careful to the expense questions in the dependent care interview.

You won't get the credit for amounts more than the FSA, but you do get to exclude the FSA amount from your taxable income.

@williasp 

I just had a brain wave, did you list your child as a dependent?  When filing MFS, you can't use an FSA to pay for dependent care expenses unless you are the parent who claims the child as a dependent. 

@Opus 17   Ok, that's interesting it worked for you.  Are you also NOT claiming the child as a dependent.  That seems to be the problem, along with MFS.  I am not claiming the child as a dependent.

I'll try again tomorrow, although I'm not optimistic mainly because I've gone through every possible iteration today.

I've already checked box 18b and filled in spouse's income, so that's not the issue.  I've gone through the child worksheet, from which numbers translate to the 2441, but no help.  I suppose I could delete the worksheet and go through the interview, but I'm not optimistic.  I can go through the W2 interview again and see if that's useful.  I hate to delete the W2 because it's a lot of info to reenter.  I've gone through the W2 (and worksheet if there is one) in forms view to make sure all the info is correct. 

I'll check back tomorrow if no progress.  Again, I'm not optimistic only because I've already tried just about every possible variation I could think of.  This shouldn't be this difficult.

Just saw this.  Is that really the case?  That seems a bit illogical.  If I'm paying into an FSA account and spending the money on child care, and I'm a parent, why shouldn't I be able to deduct those expenses.  My reading of the IRS instructions seemed to suggest that I'm not entitled to any type of child tax credits.  But I don't want those credits.  I simply want my FSA reimbursements to be qualified as not taxable.  In other words, the FSA amount should be excluded from taxable income.

Sorry, you have to have a qualifying dependent to use either the credit or the FSA.  

It is almost never to your tax advantage to file separately, this is just one of many reasons. You may want to rethink your strategic decision.  

Unfortunately, married people where one partner has an income-based student loan repayment plan is forced to file MFS if they want to keep their loan payments within reason.  Otherwise, filing MFS is a real pain in the butt.

Keep in mind that income-based repayment plans can often last for many years, and one's tax situation is likely to change over time. A visit to a tax planner might be in order at some point.

I’ve never been convinced that IBR is actually worth it. I got a low income repayment plan and stretched 10 years worth of loans out over 27 years and boy did it suck to be making payments in between playing with my grandchildren.  At the end I was making double and triple payments and I couldn’t wait to get the damn thing finished.

You are going to lose a ton of tax benefits by filing separately especially now that you have kids. You need to consider the cost of all of those benefits over the next 10, or 20, or 25 years to make sure that it is really worth it in the long term.  In addition to the child tax credit and the FSA rules, your ability to contribute to an IRA is severely restricted, and a number of other credits and deductions are reduced or disallowed.

IBR might make sense if you will qualify for public service loan forgiveness after the first 10 years. But you should check the success rate of PSLF applications, a couple of years ago when the first loan started to mature, the success rate was less than 5%. People found that their jobs didn’t qualify, or that they hadn’t registered their income properly with the Department of Education, or that somewhere they had slipped up in the paperwork and their application was denied.  I suppose IBR might also makes sense if you think that a Democratic-led federal government is someday going to forgive most of student loans.  There are just enough moderate Democratic senators that I think that is unlikely to happen, at least for the near future.

Finally, unless the laws change, any forgiven student loan amount will be taxable income to you in the year it is forgiven. Once you consider the fact that the forgiven loan balance is taxable income, and add all the tax benefits you lost over the previous decades, you may not be as enamored of the plan as you are now.

Thanks for the input.  Actually, this post is really about my son and daughter-in-law who are in this situation.  I simply do their taxes along with my own.

She does have public employment, so the plan (hope) is that the loan is erased in 10 years.  I am aware the erased loan may be taxable.  However, paying the tax on a huge loan balance is far better than having to pay the balance.  Several years back I even offered to pay off half the loan if she could get her father to pay the other half, but she didn't want to ask, mainly because she thought it wouldn't be fair to her siblings.

We have a workaround for the loss of IRA eligibility.  They each do a backdoor Roth, first making a non-deductible t-IRA contribution, then converting to Roth.  So that actually works out fine.

Perhaps filing MFS will result in some losses along the way.  For 2020, there was at least one benefit.  She and her child could claim the Covid stimulus payment because her salary is relatively low.  If they filed jointly, I'm not sure they would have been eligible.  (I'd have to check the limit on that to be sure.)

Believe me, I would much rather they file MFJ.  That would make tax time a lot easier.  It is really unfortunate that the IBR plan messes things up.