FSA Contributions

[LO62]

My employer included my FSA contributions for child care expenses in Box 10 on my W-2.  When I read the description for items to be included in Box 10 it clearly states that this is only for contributions that will be reimbursed by my employer which is not the case here.  The money will not be reimbursed  by them.  Did my employer put that item in the wrong box? Seems that this is reducing my child care expense deduction.

[CatinaT1 · Accepted solution]

Box 10 of your W2 records FSA contributions for childcare expenses. There is a $5,000 limit for this purpose.

The money in this box is withheld pre-tax, so you are receiving a tax benefit by having it withheld pre-tax. 

You can't withhold money pre-tax and also use that same money to take the Dependent Care Credit; that would be getting a double tax break. 

However, the Dependent Care Credit is limited to $3,000 of expenses for one child and $6,000 of expenses for 2 or more children.

If you have only 1 child and had the maximum $5,000 in your FSA, you cannot take the Dependent Care Credit. The FSA is the best option because you are actually getting $5,000 pre-tax instead of only getting the credit on $3,000 otherwise. 

If you have two or more children, you would still have $1,000 to apply to the credit that hasn't received any tax benefit yet. 

This is why you are seeing your childcare expense deduction being reduced.