Confused VA (state) dependant care question TAX

[Anonymous]

My adjusted gross is 109. I used the 5k dependent care account. My actual dependant care expense for 1 was 17k(apx). Based on my income I got nothing for the federal dependent deduction. Does that mean I get nothing for VA as well ?

This what VA's guidance says (when I do the google)
101 Child and Dependent Care Expenses - You may claim this deduction on your Virginia return only if you were eligible to claim a credit for child and dependent care expenses on your federal return. Enter the amount on which the federal credit for child and dependent care is based. (This is the amount on federal Form 2441 or Schedule 2 of Form 1040A that is multiplied by the decimal amount - up to $3,000 for one dependent and $6,000 for 2 or more.). DO NOT ENTER THE FEDERAL CREDIT AMOUNT.

Its the second bold that is confusing me. Is there a more clear explanation out there? Or can anybody tell me yes or no in toddler (ok elemenatry school) terms?

[Anonymous]

If you use a dependent care account, that doesn't have anything to do with your income -- that's a work-provided benefit and it is EXCLUDED from income. So long as you provide the receipts, you will get reimbursed with money you set aside untaxed.

You may be thinking of the dependent care CREDIT,which, indeed, it sounds like you don't qualify for (at least in its entirety). But I don't think you can double-dip with the DCSA and the credit in any case.

So, basically, since you don't qualify for the credit at the federal level, you also don't qualify for it at the state level.

However, if you had a dependent care account, that money has already avoided any taxation by the fed or the state (you entered it already when you transmitted your W-2 information). But you don't get some additional benefit now that you are filing your returns.

Hope this makes sense.

[Anonymous]

Anonymous wrote:If you use a dependent care account, that doesn't have anything to do with your income -- that's a work-provided benefit and it is EXCLUDED from income. So long as you provide the receipts, you will get reimbursed with money you set aside untaxed.

You may be thinking of the dependent care CREDIT,which, indeed, it sounds like you don't qualify for (at least in its entirety). But I don't think you can double-dip with the DCSA and the credit in any case.

So, basically, since you don't qualify for the credit at the federal level, you also don't qualify for it at the state level.

However, if you had a dependent care account, that money has already avoided any taxation by the fed or the state (you entered it already when you transmitted your W-2 information). But you don't get some additional benefit now that you are filing your returns.

Hope this makes sense.

Not really. But I get my answer is no. Thanks so much for trying to explain. OP

[Anonymous]

The previous poster already explained that you have to choose either the 5K dependent care account OR the tax credit. This is why you can not claim the federal tax credit--there is no income limitation according to the form.

Here are the instructions you asked about broken down:

101 Child and Dependent Care Expenses - You may claim this deduction on your Virginia return only if you were eligible to claim a credit for child and dependent care expenses on your federal return.

You can not claim the childcare credit in VA unless you can claim it on your federal taxes. You couldn't claim it federally because you had already used the tax benefits of the dependent care savings account.

Enter the amount on which the federal credit for child and dependent care is based. (This is the amount on federal Form 2441 or Schedule 2 of Form 1040A that is multiplied by the decimal amount - up to $3,000 for one dependent and $6,000 for 2 or more.).

This is telling you where on the federal form to look for the number to enter on the state form IF you are eligible.

DO NOT ENTER THE FEDERAL CREDIT AMOUNT.

This is just reiterating that you are to enter the number from the federal form that is used to calculate the federal credit, not to enter the amount of the credit you qualified for.

So, basically, the way they calculate the federal credit is they multiply a number (the amount spent on childcare up to $3000 for one child or $6000 for more than one) by a percentage (based on income. For incomes above $42K it is 20%) to get the tax credit.
So in your case, it would be $3000 x 0.2 = $600 tax credit.

The instructions are telling you to enter $3000 on the state form and not $600.

For comparison, at 109K AGI, your marginal tax rate is either 25% or 28% (depending on whether you're married or single). So the tax benefits of the dependent care account are between $1250 and $1400. Clearly a better deal for you. You just saved that money throughout the year instead of at tax filing time.