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Childcare Tax Related Inquiry

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S

SmallChan

Junior Member
Hey All!

I have a few questions regarding the Dependent Care FSA through my employer vs the Dependent care tax credit.

As I understand, you can only choose one for the year and I am wondering which is the better route for us to go based on our scenario.

My child will be entering part time daycare for the last 2.5 months of the year and she has never attended daycare before. Our expenses will end up being about 1800$ in childcare expenses for the 2017 taxation year. I am wondering if it still makes sense to sign-up for an FSA for the remainder of the year and contribute the majority of the cost into it (as I'm allowed up to 5k into that account), or just claim the Dependent care tax credit during tax season next year. I've done the math and in 2018 it definitely makes sense to do the FSA but I'm on the fence about 2017.

Can anyone offer any insight? Any help would be really appreciated.

Thanks!
 


LdiJ

LdiJ

Senior Member
SmallChan said:
Hey All!

I have a few questions regarding the Dependent Care FSA through my employer vs the Dependent care tax credit.

As I understand, you can only choose one for the year and I am wondering which is the better route for us to go based on our scenario.

My child will be entering part time daycare for the last 2.5 months of the year and she has never attended daycare before. Our expenses will end up being about 1800$ in childcare expenses for the 2017 taxation year. I am wondering if it still makes sense to sign-up for an FSA for the remainder of the year and contribute the majority of the cost into it (as I'm allowed up to 5k into that account), or just claim the Dependent care tax credit during tax season next year. I've done the math and in 2018 it definitely makes sense to do the FSA but I'm on the fence about 2017.

Can anyone offer any insight? Any help would be really appreciated.

Thanks!
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An FSA is a use it or lose it account, therefore I virtually never recommend that someone use one. Often enough something happens during the year that either causes a person not to use the entire FSA, or they miss a deadline or something else that causes them to lose money. Therefore I am not a fan.

However, you are a bit wrong that its either an FSA OR the Dependent Care Credit. Generally if a child is going to be in child care for the entire year, its going to add up to more than the 5k limit, so a parent can claim whatever additional expenses they have over the 5k limit via the Dependent Care Credit.
 
S

SmallChan

Junior Member
LdiJ said:
An FSA is a use it or lose it account, therefore I virtually never recommend that someone use one. Often enough something happens during the year that either causes a person not to use the entire FSA, or they miss a deadline or something else that causes them to lose money. Therefore I am not a fan.

However, you are a bit wrong that its either an FSA OR the Dependent Care Credit. Generally if a child is going to be in child care for the entire year, its going to add up to more than the 5k limit, so a parent can claim whatever additional expenses they have over the 5k limit via the Dependent Care Credit.
Click to expand...
Thank you, that is helpful. So basically in 2018, it would make sense to do the FSA as long as I am 100% sure that I will use the full 5k in contributions (agreed that the costs will far exceed this) and then I can claim any additional expenses on the Dependent Care Credit (up to 3k?). Does that sound like the way to go for 2018?

How about for the remainder of 2017 as described... does it even make sense to do an FSA for the amount and remaining time for the year?

I wasn't really sure.

Thanks for your help!
 
LdiJ

LdiJ

Senior Member
SmallChan said:
Thank you, that is helpful. So basically in 2018, it would make sense to do the FSA as long as I am 100% sure that I will use the full 5k in contributions (agreed that the costs will far exceed this) and then I can claim any additional expenses on the Dependent Care Credit (up to 3k?). Does that sound like the way to go for 2018?
Click to expand...
Yes.

How about for the remainder of 2017 as described... does it even make sense to do an FSA for the amount and remaining time for the year?

I wasn't really sure.

Thanks for your help!
Click to expand...
I do not think it would make any sense for 2017...however that is just my opinion, and is colored by the fact that I am anti FSAs.
 
H

HRZ

Senior Member
IF you pay keen attention to spending all the FSA timely it should be OK...many a care provider requires payment in advance so some attention to YE payments may help ...
 
S

SmallChan

Junior Member
It sounds like the overall opinion is that it is risky due to the end of the year being close. Would it be best just to claim the Tax Credit in tax season? An other insight?
 
LdiJ

LdiJ

Senior Member
SmallChan said:
Do you know, based on what I would be spending for the rest of the year in childcare expenses (1800), how much would I have using the credit for the 2017 season?
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It depends on your overall income and your marginal tax rate. The same applies to the FSA. How much it saves you depends on your marginal tax rate.
 
LdiJ

LdiJ

Senior Member
SmallChan said:
Thanks again for the help! :) It would be 25% federal and 5.1% state.
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Then the FSA would save you 25% of the amount you put in the FSA. For the dependent care credit its 20-35% (depending on income) of the actual daycare expense or 3000.00, whichever is lower.
 
S

SmallChan

Junior Member
LdiJ said:
Then the FSA would save you 25% of the amount you put in the FSA. For the dependent care credit its 20-35% (depending on income) of the actual daycare expense or 3000.00, whichever is lower.
Click to expand...
Alright, so basically there is no real advantage to the FSA for the remainder of the year.. I may save an additional 5% but would have to worry about actually using everything that I contributed...
 
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