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Dea2020
Returning Member

Dependent Care Benefits

Hello.

Box 10 of W2 for DCB(1 kid) shows $10361.90. A portion of this amount ($5361.90) also is included in my wage, box 1.

What should I declare as DCB in this case? What is taxable?

Thnx

3 Replies
BillM223
Expert Alumni

Dependent Care Benefits

Go through the child and dependent care interview (look under Deductions & Credits->Family->Child and dependent care).

 

Answer the questions, like who you paid money to and how many children were involved.

 

As for your questions, you can apply a maximum of $5,000 to a dependent care FSA (Flexible Spending Account) that your employer set up. Anything more than that will be included as income because there is no way to make it exempt from being taxed. That explains the $5,361.90 that is included as Wages in box 1.

 

The purpose of the Child and Dependent Care interview is to document how you spent the money from the FSA (otherwise, it would be disallowed as tax exempt). You will not receive any additional tax benefit over and above the $5,000 that is not taxable.

 

Don't make additional entries about the Dependent Care Benefits; just answer the questions in that interview, and it will be taken care of.

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Dea2020
Returning Member

Dependent Care Benefits

So, I paid also $3500 for the day care. What is taxable? What should I put on form 2241?

I am confused. Why $5361.90 is included as income and taxable while this is an amount that church pays for the day care. Its a discount because my wife is their employee. $10361.90 are expenses for the day care that church pays as discount.  We only paid $3500.

BillM223
Expert Alumni

Dependent Care Benefits

You asked, 

"Why $5361.90 is included as income and taxable while this is an amount that church pays for the day care. Its a discount because my wife is their employee. $10361.90 are expenses for the day care that church pays as discount.  "

 

The IRS says (note that "you" refers to your employer, not you personally):

"Box 10—Dependent care benefits (not applicable to Forms W-2AS, W-2CM, W-2GU, or W-2VI). 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. This may include (a) the FMV of benefits provided in kind by the employer, (b) an amount paid directly to a daycare facility by the employer or reimbursed to the employee to subsidize the benefit, or (c) benefits from the pre-tax contributions made by the employee under a section 125 dependent care flexible spending account. Include any amounts over $5,000 in boxes 1, 3, and 5"

See IRS Instructions for line 10 for the W-2.

 

The church is following the IRS instructions for the W-2. Essentially, the church is not allowed to give you child care benefits in excess of $5,000 that are tax free. Thus the $5,361.90 in excess of the $5,000 limit is reported as taxable income.

 

When in the child and dependent care interview you are asked about how much you spent on your child, answer with $3,500. Don't include the amount that the

church kicked in in box 10 on the W-2.

 

When you are asked how much your child care provider was paid, answer with $10,361.90+$3,500 ($13,861.90 if my math is correct). When you are asked how much was left over in your FSA, answer 0 (if that's true - I assume that the church took every penny). 

 

At the end, TurboTax should tell you that you have received $0 for the credit, which would be correct.

 

You tax benefit is that the church paid for the first $5,000 of the child care and excluded this amount from your income (so you didn't pay any tax on that $5,000).

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