Author Topic: FSA worth it with standard deduction?  (Read 1988 times)

kimmarg

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FSA worth it with standard deduction?
« on: December 02, 2016, 06:59:16 AM »
I'm a US Federal government employee. As of right now I've signed up for both the Health Care FSA and the Dependent Care FSA for next year but I have a few more days to change my mind.  I am 100% sure I will incur expenses next year in excess of what I have put into the FSA for next year. I am NOT sure what my filing status will be in terms of standard or itemized deductions and child tax credit/childcare stuff. (This will be my first year with childcare expenses).   Is having an FSA always to my advantage? Is there any tax situation in which I would NOT want an FSA.  I know it's always good to have a TSP regardless of standard or itemized deduction (we usually have done standard but this year itemized may finally be better) is an FSA also always to your advantage?
« Last Edit: December 02, 2016, 07:05:35 AM by kimmarg »

KCM5

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Re: FSA worth it with standard deduction?
« Reply #1 on: December 02, 2016, 07:07:57 AM »
I don't know of any tax situation where you would not want an FSA. It reduces your taxable income regardless of whether or not you itemize.

kimmarg

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Re: FSA worth it with standard deduction?
« Reply #2 on: December 02, 2016, 07:16:27 AM »
perfect! Just what I needed to know. My coworker seemed to think it wasn't worth it but I thought otherwise.

KCM5

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Re: FSA worth it with standard deduction?
« Reply #3 on: December 02, 2016, 08:21:30 AM »
Just to add additional information: you can't use the childcare tax credit if you only have one child and have an FSA. But the childcare tax credit for one child only deducts up to $3,000 of childcare costs and the FSA gives you $5k tax free. (If you have two children in childcare then you can use the FSA and also deduct $1k with the childcare tax credit.) Also, the childcare FSA reduces your income according to Social Security because it is also exempt from payroll tax (7.65%).

So if you're in the 25% tax bracket the FSA saves you 32.65% * 5,000 = $1632. The childcare tax credit would be 25% * 3,000 = $750. I think almost $900 is worth it for the extra hassle!


Proud Foot

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Re: FSA worth it with standard deduction?
« Reply #4 on: December 02, 2016, 01:13:16 PM »
You are almost always better off doing the Dependent Care FSA over the child care tax credit.  For the FSA, as long as you will have out of pocket medical expenses to meet your contributions less $500 carryover (if your FSA allows it) you will come out ahead.  I am sure you could calculate a break-even point to where it wold not be worth it but I have never calculated it for myself.