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tax question regarding daycare
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dani731
Blessed!!!
Member since 1/08 3355 total posts
Name:
D
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Re: tax question regarding daycare
Posted by MrsS2005
Posted by dani731
See below #7 under Test to Claim Credit AND #3 under Dependent Care Benefits
Publication 503 (2008), Child and Dependent Care Expenses
ETA - I am not 100% sure on this but I am going to look into it more. I am going to do a test when I go home on the 2008 tax software that I have. I am going to see how it actually works, rather than try to figure it out from reading all that IRS stuff.....
In the link you posted, the explanation under "Reduced Dollar Limit" seems to show that for one child, any amount you pay towards a flexible spending account would be deducted from your credit. Maybe I'm reading this wrong, but to me, it seems that if you use at least $3,000 for a flexible spending account for one child, you wouldn't be able to get the credit. It would cancel the credit out.
I am seeing that too. I didnt realize the tax credit was limited to $3k I thought it was much more than that. If that is the case the FSA is the best option for us. I am still going to "test" it on 2008 when I go home......
Message edited 11/5/2009 4:06:19 PM.
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Posted 11/5/09 4:05 PM  |
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MrsS2005
Mom of 3
Member since 11/05 13118 total posts
Name:
B
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Re: tax question regarding daycare
Posted by LeShellem
Ok, so I am not giving up on this. Found this on Aetna.
Your Dependent Care FSA and Tax Credits:
You can use both a dependent care FSA and claim the Child and Dependent Care Credit when your file your income taxes, but you cannot claim the same expenses for both. If you plan to use both, the IRS requires that you subtract the amount you have directed into a spending account from the expenses you use to calculate the tax credit.
Complete IRS Form 2441 when filing your income taxes for the year
Your employer will report all dependent care contributions in Section 10 of your W-2 Form(s).
For more information, visit www.irs.gov.
Aetna Link
So it sounds like if you pay more than the 5k for fsa you can claim any additional amount above that.
I copied this from the IRS link that Dani posted above. Sorry if the table doesn't come out right:
Reduced Dollar Limit
If you received dependent care benefits that you exclude or deduct from your income, you must subtract that amount from the dollar limit that applies to you. Your reduced dollar limit is figured in Part III of Form 2441 or Schedule 2 (Form 1040A). See Dependent Care Benefits, earlier, for information on excluding or deducting these benefits.
Example.
George is a widower with one child and earns $24,000 a year. He pays work-related expenses of $2,900 for the care of his 4-year-old child and qualifies to claim the credit for child and dependent care expenses. His employer pays an additional $1,000 under a qualified dependent care benefit plan. This $1,000 is excluded from George's income.
Although the dollar limit for his work-related expenses is $3,000 (one qualifying person), George figures his credit on only $2,000 of the $2,900 work-related expenses he paid. This is because his dollar limit is reduced as shown next.
George's Reduced Dollar Limit
1) Maximum allowable expenses for one
qualifying person $3,000
2) Minus: Dependent care benefits George
excludes from income -1,000
3) Reduced dollar limit on expenses George
can use for the credit $2,000
To me, this means that if you used at least $3,000 in a flexible spending account, that would completely wipe out any credit you may have been eligible for. If you have 2 or more kids, I think you could get the benefit of both as long as the same expenses weren't used for both the credit and the FSA.
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| Posted 11/5/09 4:09 PM |
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LeShellem
A new beginning
Member since 2/07 3600 total posts
Name:
LeShelle
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Re: tax question regarding daycare
Posted by MrsS2005
Posted by LeShellem
Ok, so I am not giving up on this. Found this on Aetna.
Your Dependent Care FSA and Tax Credits:
You can use both a dependent care FSA and claim the Child and Dependent Care Credit when your file your income taxes, but you cannot claim the same expenses for both. If you plan to use both, the IRS requires that you subtract the amount you have directed into a spending account from the expenses you use to calculate the tax credit.
Complete IRS Form 2441 when filing your income taxes for the year
Your employer will report all dependent care contributions in Section 10 of your W-2 Form(s).
For more information, visit www.irs.gov.
Aetna Link
So it sounds like if you pay more than the 5k for fsa you can claim any additional amount above that.
I copied this from the IRS link that Dani posted above. Sorry if the table doesn't come out right:
Reduced Dollar Limit
If you received dependent care benefits that you exclude or deduct from your income, you must subtract that amount from the dollar limit that applies to you. Your reduced dollar limit is figured in Part III of Form 2441 or Schedule 2 (Form 1040A). See Dependent Care Benefits, earlier, for information on excluding or deducting these benefits.
Example.
George is a widower with one child and earns $24,000 a year. He pays work-related expenses of $2,900 for the care of his 4-year-old child and qualifies to claim the credit for child and dependent care expenses. His employer pays an additional $1,000 under a qualified dependent care benefit plan. This $1,000 is excluded from George's income.
Although the dollar limit for his work-related expenses is $3,000 (one qualifying person), George figures his credit on only $2,000 of the $2,900 work-related expenses he paid. This is because his dollar limit is reduced as shown next.
George's Reduced Dollar Limit
1) Maximum allowable expenses for one
qualifying person $3,000
2) Minus: Dependent care benefits George
excludes from income -1,000
3) Reduced dollar limit on expenses George
can use for the credit $2,000
To me, this means that if you used at least $3,000 in a flexible spending account, that would completely wipe out any credit you may have been eligible for. If you have 2 or more kids, I think you could get the benefit of both as long as the same expenses weren't used for both the credit and the FSA.
I read this too. He can't claim the 1000 on his tax credit because he already used it on fsa. He use 1000 on fsa, the remaining amount he uses for the tax credit. But what if george paid 9k for childcare and maxed out the 5k, then using the above formula:
George's Reduced Dollar Limit
1) Maximum allowable expenses for one
qualifying person $3,000
2) Minus: Dependent care benefits George
excludes from income -5,000
3) Reduced dollar limit on expenses George
can use for the credit $4000
You don't subtract the 5000 from the 3000. You subtract the 5000 from the 9000 that you paid for. George can only claim 2000 because his child care cost only 2900. This doesn't work if you paid beyond this amount.
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| Posted 11/5/09 4:16 PM |
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MrsS2005
Mom of 3
Member since 11/05 13118 total posts
Name:
B
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Re: tax question regarding daycare
Posted by LeShellem
Posted by MrsS2005
Posted by LeShellem
Ok, so I am not giving up on this. Found this on Aetna.
Your Dependent Care FSA and Tax Credits:
You can use both a dependent care FSA and claim the Child and Dependent Care Credit when your file your income taxes, but you cannot claim the same expenses for both. If you plan to use both, the IRS requires that you subtract the amount you have directed into a spending account from the expenses you use to calculate the tax credit.
Complete IRS Form 2441 when filing your income taxes for the year
Your employer will report all dependent care contributions in Section 10 of your W-2 Form(s).
For more information, visit www.irs.gov.
Aetna Link
So it sounds like if you pay more than the 5k for fsa you can claim any additional amount above that.
I copied this from the IRS link that Dani posted above. Sorry if the table doesn't come out right:
Reduced Dollar Limit
If you received dependent care benefits that you exclude or deduct from your income, you must subtract that amount from the dollar limit that applies to you. Your reduced dollar limit is figured in Part III of Form 2441 or Schedule 2 (Form 1040A). See Dependent Care Benefits, earlier, for information on excluding or deducting these benefits.
Example.
George is a widower with one child and earns $24,000 a year. He pays work-related expenses of $2,900 for the care of his 4-year-old child and qualifies to claim the credit for child and dependent care expenses. His employer pays an additional $1,000 under a qualified dependent care benefit plan. This $1,000 is excluded from George's income.
Although the dollar limit for his work-related expenses is $3,000 (one qualifying person), George figures his credit on only $2,000 of the $2,900 work-related expenses he paid. This is because his dollar limit is reduced as shown next.
George's Reduced Dollar Limit
1) Maximum allowable expenses for one
qualifying person $3,000
2) Minus: Dependent care benefits George
excludes from income -1,000
3) Reduced dollar limit on expenses George
can use for the credit $2,000
To me, this means that if you used at least $3,000 in a flexible spending account, that would completely wipe out any credit you may have been eligible for. If you have 2 or more kids, I think you could get the benefit of both as long as the same expenses weren't used for both the credit and the FSA.
I read this too. He can't claim the 1000 on his tax credit because he already used it on fsa. He use 1000 on fsa, the remaining amount he uses for the tax credit. But what if george paid 9k for childcare and maxed out the 5k, then using the above formula:
George's Reduced Dollar Limit
1) Maximum allowable expenses for one
qualifying person $3,000
2) Minus: Dependent care benefits George
excludes from income -5,000
3) Reduced dollar limit on expenses George
can use for the credit $4000
You don't subtract the 5000 from the 3000. You subtract the 5000 from the 9000 that you paid for. George can only claim 2000 because his child care cost only 2900. This doesn't work if you paid beyond this amount.
I don't think what you're saying is correct. George can only claim $2,000 b/c his credit is reduced by the $1,000 spent with the FSA.
If what you were saying was correct, the table in the IRS link where George paid $2,900 for childcare would be:
1) $3,000
2) -$1,000
3)$1,900
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| Posted 11/5/09 4:37 PM |
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LeShellem
A new beginning
Member since 2/07 3600 total posts
Name:
LeShelle
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Re: tax question regarding daycare
I agree with you it should be 1900, not sure why it is 2000, but here is yet another link saying you can use both.
St. Johns
From the link:
Federal Tax Credit For Dependent Care
You may find it more advantageous to take a dependent care tax credit on your federal income
tax return rather than to use the FSA Dependent Day Care Account. The decision will depend on
your overall childcare expenses and your household income, so it would be wise to check with
your tax advisor. You are permitted to use both the Federal tax credit and the FSA day care
account, but not for the same expense.
and another:
Tax credit vs. FSA
You may already know you can
claim a Child and Dependent Care
Credit (CDCC) through the IRS.
You can use it to deduct workrelated
dependent care expenses
when you file your income tax
return.
You can use both a dependent care
FSA and claim the CDCC. You
cannot claim the same expenses for
both. If you plan to use both, you
must first subtract the amount you
have directed into your FSA from
the expenses you use for the
CDCC.
more
Message edited 11/5/2009 4:56:54 PM.
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| Posted 11/5/09 4:51 PM |
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| Pages: 1 [2] |
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