Question about child care flexible spending and dependent care tax credit and child tax credit

[Sschendel1989]

Hi there,

- Married filed jointly

- combined taxable income of $168k (both make roughly the same amount of money)

- no state income tax

- one child

- will pay about $22,000 in daycare expenses next year

We intend on putting $5,000 toward the flexible spending account offered by my employer, which leaves about $17,000 in daycare costs.

Are we still eligible for the child tax credit as well as the child and dependent care tax credit? And is the amount that we are eligible for the tax credit reduced based on our income?

Thank you!

[SoCalGal22]

Excellent question Sschendel1989!

You would still be eligible for the Child Tax Credit

The maximum Child and Dependent Care Credit for 2022 is up to $3000 of qualifying expenses for a maximum credit of $1050.  It is back to being a non-refundable credit, meaning it can only be applied to taxes owed on the return.

Your childcare payments through your FSA would be applied first, since there are with pre-tax dollars.

Between an AGI of $125,000 and  $183,000, the Child and Dependent Care Credit declines by 1% for each $2000 above $125,000.

Here is where all the IRS information on this is located.  See page 2 for info on your FSA.  I don't believe this has been updated for 2022 yet, so keep your fingers crossed:

https://www.irs.gov/forms-pubs/about-publication-503

 Do these help in any way?  Please let me know if you are looking for more detail on any one of these.

[shirleyh88]

Hello Sschendel1989,

Thank you for your question. I am happy to assist you.

For tax year 2022, the child tax credit uses a parent’s Modified Adjusted Gross Income (MAGI) to provide a partially refundable tax credit. What does a partially refundable credit mean? It means that even if you do not have income tax liabilities for the tax year, you can still receive some parts of the credit.

In 2022, the child tax credit has reverted back to $2,000 for every dependent who are under 16 year- old, and the income thresholds for married filing joint like you and your spouse is $400,000.

So the answer to your question is yes, you can still qualify for child tax credit in 2022 since your combined income is $168,000 (under threshold for MFJ of $400,000). Your child tax credit will not be reduced based on your income since your income is under the $400,000 threshold. However, there will no longer be an Advanced Child Tax Credit payments in 2022 like there was in 2021.

Please use the link below for reference:

https://smartasset.com/taxes/all-about-child-tax-credits#:~:text=The%20child%20tax%20credit%20has,an...

As for the dependent tax credit, you will qualify only for a partial credit (income threshold for partial credit = $438,000) while income threshold for maximum credit is $15,000. Hence, the more money you make, the less the reimbursement.

You must have a combined income of less than $15,000 to receive the maximum credit of $1,050 for one child, or $2,100 for two or more children. As for the amount of expenses you can claim, you can claim up to a maximum of $3,000 for one child, and up to $6,000 for two children.

Please use the link below for reference:

https://financialsolutionadvisors.com/blog/your-at-a-glance-guide-to-child-and-dependent-care-tax-cr...

Please let me know if this answers your questions, or if I can be of further assistance.

Thank you!

Shirleyh88

[Sschendel1989]

It's very helpful, thank you!!

[SuziM]

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