Author Topic: Child Care Credit vs Dependent Care FSA  (Read 309 times)

FIRE_Wannabe

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Child Care Credit vs Dependent Care FSA
« on: January 05, 2018, 05:00:48 PM »
After looking through the tax changes for 2018 (to be filed in 2019) - I think I may have made the wrong choice. I am married filing jointly with 1 baby. Yearly daycare costs are about 10K.  I elected to do the dependent care FSA.  I calculate this would save approximately $1982.65.  I believe when doing this i can't also do the tax credit which got bumped to $2000.

MAGI - $150K
Tax Bracket - 25%
FICA - 7.65%
AR State Income Tax - 7%

Questions:
1. Is it correct that both child care tax credit and dependent care FSA can't be claimed?
2. If so, Am I correct in thinking that the credit $2000 > tax savings $1982? Am I missing anything?
3. If i already contributed for the year $250 to the FSA, is there anyway to reverse that to go the credit route or is it to late?

MDM

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Re: Child Care Credit vs Dependent Care FSA
« Reply #1 on: January 05, 2018, 06:34:32 PM »
I believe one can claim both, but the amount of the childcare FSA will affect the amount of the credit.

This happens to be a calculation I'm studying for the next version of the case study spreadsheet.

If you are so inclined, take the attached and enter your numbers.  Then see the section starting in cell AG18 (and of course the final tax amount).  You can vary cells B6 (or C6) and B88 for some "what if...?" calculations.

Implementation does not address employer contributions for childcare.  If that is important and easy enough to implement, then....

If you try it, please post (or PM) how it works for you.
« Last Edit: January 06, 2018, 09:17:15 AM by MDM »

Gin1984

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Re: Child Care Credit vs Dependent Care FSA
« Reply #2 on: January 05, 2018, 06:55:17 PM »
I believe one can claim both, but the amount of the childcare FSA will affect the amount of the credit.

This happens to be a calculation I'm studying for the next version of the case study spreadsheet.

If you are so inclined, take the attached and enter your numbers.  Then see the section starting in cell AG18 (and of course the final tax amount).  You can vary cells B6 (or C6) and B88 for some "what if...?" calculations.

Implementation does not address employer contributions for childcare.  If that is important and easy enough to implement, then....

If you try it, please post (or PM) how it works for you.
The numbers on line 4 and 5 of form 2441 should be after 401k contributions, and it is not on yours.

MDM

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Re: Child Care Credit vs Dependent Care FSA
« Reply #3 on: January 05, 2018, 07:31:41 PM »
The numbers on line 4 and 5 of form 2441 should be after 401k contributions, and it is not on yours.
Fixed - thanks!  New version attached in the previous post.

FIRE_Wannabe

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Re: Child Care Credit vs Dependent Care FSA
« Reply #4 on: January 06, 2018, 07:54:21 AM »
I think I figured it out.  This will be my first year filing taxes with a dependent so I was new to the tax benefits and was getting the terminology confused.  I'll write it here to help anyone else.

Three distinct pieces:
1. Child Tax Credit  (CTC) - This is what Trump changed to $2000, and has nothing to do with child care.

2. Child Care Credit - "The Child and Dependent Care Tax Credit (CDCTC)" . For me, for 1 dependent, and the lower earning spouse AGI > 43K, the max credit I could claim is $600
min( 3000, dependent care expenses)*20% = 600
http://thismatter.com/money/tax/tax-credits/credit-for-child-and-dependent-care-expenses.htm

3.Dependent Care FSA -Tax Deduction. For me, can deposit max of 5000, and will reduce Federal Tax, FICA, and State Tax. This comes out to about ~2000.

Summary - I was interchanging the Child Care Credit, and Child Tax Credit and getting confused.  I can claim the Child Tax credit.  In addition I can also claim either the Child Care Credit or Dependent Care FSA. In my case it will be the dependent care FSA.

MDM

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Re: Child Care Credit vs Dependent Care FSA
« Reply #5 on: January 06, 2018, 08:17:20 AM »
I think I figured it out.  This will be my first year filing taxes with a dependent so I was new to the tax benefits and was getting the terminology confused.  I'll write it here to help anyone else.

Three distinct pieces:
1. Child Tax Credit  (CTC) - This is what Trump changed to $2000, and has nothing to do with child care.

2. Child Care Credit - "The Child and Dependent Care Tax Credit (CDCTC)" . For me, for 1 dependent, and the lower earning spouse AGI > 43K, the max credit I could claim is $600
min( 3000, dependent care expenses)*20% = 600
http://thismatter.com/money/tax/tax-credits/credit-for-child-and-dependent-care-expenses.htm

3.Dependent Care FSA -Tax Deduction. For me, can deposit max of 5000, and will reduce Federal Tax, FICA, and State Tax. This comes out to about ~2000.

Summary - I was interchanging the Child Care Credit, and Child Tax Credit and getting confused.  I can claim the Child Tax credit.  In addition I can also claim either the Child Care Credit or Dependent Care FSA. In my case it will be the dependent care FSA.
In your situation (1 dependent, both spouses earn >$43K, actual care expenses >$3000), if you put $2500 into a dependent care FSA, do you still get a $100 CDCTC?  That's what the spreadshet calculation currently shows (see below), but we don't have a dependent care situation and thus might be overlooking something. ;)

Child/Dependent Care (Form 2441)   
Line 2   1
Line 3   $500
Line 4   $47,500
Line 5   $60,000
Line 6   $500
Line 7   $107,500
Line 8   0.20
Line 9   $100
Line 10   $10,249
Line 11   $100
Line 12   $2,500
Line 13   $0
Line 14   $0
Line 15   $2,500
Line 16   $3,000
Line 17   $2,500
Line 18   $47,500
Line 19   $60,000
Line 20   $2,500
Line 21   $5,000
Line 22   $0
Line 23   $2,500
Line 24   $0
Line 25   $2,500
Line 26   $0
Line 27   $3,000
Line 28   $2,500
Line 29   $500
Line 30   $500
Line 31   $500