Is it more beneficial for me to participate in the Flexible Spending Account Dependent Care Reimbursement plan or to take the Child Care Credit on my Federal Income Tax return?
You may receive a tax break on your expenses, but you must choose whether to use the Child Care Credit or the FSA. The IRS will not allow you to receive two tax breaks on the same expenses. You may claim a Child Care Credit on your tax return equal to your dependent care expenses (up to $6,000 per year for two or more dependents or $3,000 per year for one dependent) multiplied by a percentage. The percentage decreases from a high of 35% to a low of 20% as your household adjusted gross income increases. The Dependent Care FSA is limited to $5,000 per year (for you and your spouse together), $2,500 if married filing separately, for any number of dependents. You will experience “tax savings” throughout the year with every paycheck you receive. If you are subject to the lowest federal tax rate, state taxes and Social Security taxes you will save around 27% of expenses through the Dependent Care FSA. If you pay a higher federal rate, you will receive an even higher tax break through the Dep
Related Questions
- Is it more beneficial for me to participate in the Flexible Spending Account Dependent Care Reimbursement plan or to take the Child Care Credit on my Federal Income Tax return?
- If I participate in the dependent care Flexible Spending Account (FSA) plan, do I need to report anything on my personal income tax return at the end of the year?
- May I participate in the Premium Only Plan (POP), the Dependent Care Flexible Spending Account and a Health Savings Account (HSA)?
