Dependent Care FSA 2021

[engineerjourney]

Pre-pandemic both of my kids went to daycare full time and we would hit the FSA max of $5000 in March every year.  My annual enrollment for benefits starts next week and I am conflicted on what to do for the FSA this year!  I have a kid in kindergarten right now (in school 2 days a week) and a 3 year old who is just home since we have to be home most of the time with the 5 year old.  Do I take the chance that COVID lessens enough next year that my kids will be utilizing summer camps and daycare??  Anyone else not sure what to do? 

Worst case I contribute and then I can pay my mom to watch my kids this summer?

The FSA is WAY better for us than the child care credit but the FSA is use it or lose it.  What is everyone else doing? Especially interested in the those that aren't back to "normal" childcare. 

[Joel]

We are also in this situation with two children. Since our daycare costs around $900 per month per child, we are assuming that the kids will at least be in daycare the last 3-5 months of next year, so we will easily surpass the $5k.

Of course, we also paid for our daycare slot March through August since we didn’t want to lose the spot when things return to normal. So we may well be assuming normal happens sooner than it actually does.

[phildonnia]

At some point I realized that the DC FSA is essentially a discount equal to your marginal tax rate, but the Dependent Care Credit is 20%. 

So if, like me, you're in the 22% bracket, then the FSA gets you an additional 2%.  In other words, every thousand dollars in the FSA is worth twenty bucks.  To me, that's not worth all the planning, stressing, and risk of not using the money. 

If your income is lower, then the Dependent Care Credit is even a better deal.  And if you've somehow made it into a higher tax bracket, then God bless you.

Obviously, I don't intend this to be tax planning advice for your specific situation.

[engineerjourney]

At some point I realized that the DC FSA is essentially a discount equal to your marginal tax rate, but the Dependent Care Credit is 20%. 

So if, like me, you're in the 22% bracket, then the FSA gets you an additional 2%.  In other words, every thousand dollars in the FSA is worth twenty bucks.  To me, that's not worth all the planning, stressing, and risk of not using the money. 

If your income is lower, then the Dependent Care Credit is even a better deal.  And if you've somehow made it into a higher tax bracket, then God bless you.

Obviously, I don't intend this to be tax planning advice for your specific situation.

So I thought the same except the FSA also saves FICA taxes so it's definitely a better deal than the credit unless you are low income

[Joel]

At some point I realized that the DC FSA is essentially a discount equal to your marginal tax rate, but the Dependent Care Credit is 20%. 

So if, like me, you're in the 22% bracket, then the FSA gets you an additional 2%.  In other words, every thousand dollars in the FSA is worth twenty bucks.  To me, that's not worth all the planning, stressing, and risk of not using the money. 

If your income is lower, then the Dependent Care Credit is even a better deal.  And if you've somehow made it into a higher tax bracket, then God bless you.

Obviously, I don't intend this to be tax planning advice for your specific situation.

So I thought the same except the FSA also saves FICA taxes so it's definitely a better deal than the credit unless you are low income

Plus state taxes, and in CA, that’s another 9.3% pretty quickly.

[phildonnia]

At some point I realized that the DC FSA is essentially a discount equal to your marginal tax rate, but the Dependent Care Credit is 20%. 

So if, like me, you're in the 22% bracket, then the FSA gets you an additional 2%.  In other words, every thousand dollars in the FSA is worth twenty bucks.  To me, that's not worth all the planning, stressing, and risk of not using the money. 

If your income is lower, then the Dependent Care Credit is even a better deal.  And if you've somehow made it into a higher tax bracket, then God bless you.

Obviously, I don't intend this to be tax planning advice for your specific situation.

So I thought the same except the FSA also saves FICA taxes so it's definitely a better deal than the credit unless you are low income

Plus state taxes, and in CA, that’s another 9.3% pretty quickly.

That's true; hadn't considered that.  California also has a dependent care credit, but it's not available unless you're low income.