Tax question - Childcare FSA or deduct expenses?

[Anonymous]

When we had a nanny, we always had an FSA. Then youngest started K. Last year, no FSA. I work primarily from home and my job is very flexible and DH's is also relatively flexible. So last summer we did some full day camps, some half day camps, some weeks with no camp and just a few hours of babysitting or swapping playdates, etc. Plan to do the same this next summer. My understanding is that if I now exactly what I will spend, the FSA is better, but if I don't, does it make more sense to just deduct exactly what I spend? Last year we spent about $3500. If I were to put just $2400 in an FSA, and spent more than that, could I get reimbursed from the FSA for the first 2400 and then deduct beyond that?

[Anonymous]

Anonymous wrote:When we had a nanny, we always had an FSA. Then youngest started K. Last year, no FSA. I work primarily from home and my job is very flexible and DH's is also relatively flexible. So last summer we did some full day camps, some half day camps, some weeks with no camp and just a few hours of babysitting or swapping playdates, etc. Plan to do the same this next summer. My understanding is that if I now exactly what I will spend, the FSA is better, but if I don't, does it make more sense to just deduct exactly what I spend? Last year we spent about $3500. If I were to put just $2400 in an FSA, and spent more than that, could I get reimbursed from the FSA for the first 2400 and then deduct beyond that?

There's no deduction for child care expenses. I don't understand what you're going on about.

[Anonymous]

Sorry, child care tax CREDIT, not deduction.

[Anonymous]

Yes, you can claim the credit for anything beyond what's in the FSA, up to the $6K limit. So if you put the max in your FSA and have more than one kid (as we do) you can claim that last $1K if you spent at least $6K on care. When we only had one kid, it was better to do the FSA because the credit limit is $3K for one child and $6K for more than one. The FSA is use it or lose it so it's worth being conservative on it if you won't spend a lot on child care.

[Anonymous]

Actually, 15:15 here and I'm realizing that's not true--the child care credit is based on a percentage (20% at our income, but it's phased down from 35%) of your costs relative to your income. I forgot about that because we get the full $1K back since we spend an ungodly amount of money on preschool/camp/etc., but we wouldn't if we only spent a small amount. So you probably do need to do the FSA (and just still be conservative so you won't leave money sitting there).

[Anonymous]

Hmm. Okay. I guess we will put 2-3k in an FSA and see what happens. Wish you could make changes to that any time when you know actual expenses!

[Anonymous]

Well, you'll still get something back even without the FSA--just not as much. But it's (say) $3000 that you don't pay income tax on (so maybe $660 in savings if you're at the 22% bracket, plus FICA?) vs. a credit of $600 in that situation if you spend the same $3K but don't do the FSA. So it's not the end of the world if you opt not to do the FSA--but if you know you'll want to do some camps, I'd look at those costs and set aside at least that much. Also, do your kids do any aftercare or school year camps? Those count too.

[Anonymous]

Sorry OP; didn't mean to steal your thread....similar question.

We have 16yo, 2yo, and 1yo. Can we do FSA for the 16yo (summer camps) and take a 6K (2 kids *3K) standard deduction for the younger ones? Are FSAs limited by age of children?

[Anonymous]

Anonymous wrote:Well, you'll still get something back even without the FSA--just not as much. But it's (say) $3000 that you don't pay income tax on (so maybe $660 in savings if you're at the 22% bracket, plus FICA?) vs. a credit of $600 in that situation if you spend the same $3K but don't do the FSA. So it's not the end of the world if you opt not to do the FSA--but if you know you'll want to do some camps, I'd look at those costs and set aside at least that much. Also, do your kids do any aftercare or school year camps? Those count too.

OP here and between our job flexibility, working from home, and the kids long school hours, we do not use before or after care and we typically take time off for the breaks during the year. I am confident we will spend at least $2k on camps and probably pretty close to the $3500ish we spent last year, possibly more or a lot more. The kids do different camps every week and there are only a few they definitely want to repeat this coming summer. I am inclined to put something in the FSA and then claim the credit on any amount we spend over the FSA. Can I do that even if I did not max out my FSA?

[Anonymous]

Anonymous wrote:Sorry OP; didn't mean to steal your thread....similar question.

We have 16yo, 2yo, and 1yo. Can we do FSA for the 16yo (summer camps) and take a 6K (2 kids *3K) standard deduction for the younger ones? Are FSAs limited by age of children?

Yes--unfortunately you can only submit expenses for kids under age 13 (for both FSA and for the credit). There is no standard deduction--it's either the FSA or a credit of up to 20% of the costs of care for the younger two (or a combo if cost of care for younger two exceeds whatever you've put in the FSA). And only if both parents are working or looking for work for the time care is provided.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Well, you'll still get something back even without the FSA--just not as much. But it's (say) $3000 that you don't pay income tax on (so maybe $660 in savings if you're at the 22% bracket, plus FICA?) vs. a credit of $600 in that situation if you spend the same $3K but don't do the FSA. So it's not the end of the world if you opt not to do the FSA--but if you know you'll want to do some camps, I'd look at those costs and set aside at least that much. Also, do your kids do any aftercare or school year camps? Those count too.

OP here and between our job flexibility, working from home, and the kids long school hours, we do not use before or after care and we typically take time off for the breaks during the year. I am confident we will spend at least $2k on camps and probably pretty close to the $3500ish we spent last year, possibly more or a lot more. The kids do different camps every week and there are only a few they definitely want to repeat this coming summer. I am inclined to put something in the FSA and then claim the credit on any amount we spend over the FSA. Can I do that even if I did not max out my FSA?

Yes. That's a good plan for your situation.

[Anonymous]

NP- I thought the dependent care FSA was $5000 max? Are PPs saying that if we spent $24k on daycare this year we should get an additional $1000 back if we maxed out the $5000 in the FSA? TIA!

[Anonymous]

Anonymous wrote:NP- I thought the dependent care FSA was $5000 max? Are PPs saying that if we spent $24k on daycare this year we should get an additional $1000 back if we maxed out the $5000 in the FSA? TIA!

You can get a tax credit for 20% of the last $1K--not a $1K credit. That's our situation (except x2, ugh!!) The dependent care FSA and child/dependent care tax credit rules are not aligned, which is incredibly frustrating.

So if you have only one child and make over $43K, you get:
- Credit of 20% of child care costs, up to $3K in costs, less any FSA reimbursements
- Up to $5K in your FSA pre-tax
- So if you max your FSA, you have $0 in eligible costs left. (You can't count different payments for each, sadly!)

If you have two or more children and make over $43K, you get:
- Credit of 20% of child care costs, up to $6K in costs, less any FSA reimbursements
- Still only $5K in your FSA pre-tax...
- So if you max your FSA and spend at least $6K, you have $1K in eligible costs left, and are eligible for a credit of $200.

I may not be explaining that very clearly but basically if you max your FSA and spend at least $6K on child care for two kids under 13, you get an additional $1K from the dependent care tax credit. If you have only one kid under 13, you're only eligible if you had less than $3K in your FSA. In both cases, you still want to max the FSA first if you think you will spend that much, since you get more benefit from that than from the credit.

[Anonymous]

Also note that if you have more than one child, it makes no difference which child you're spending the child care money on--you can use the FSA and credit just for costs for one child and still have the two-child limit.

[Anonymous]

Anonymous wrote:

Anonymous wrote:NP- I thought the dependent care FSA was $5000 max? Are PPs saying that if we spent $24k on daycare this year we should get an additional $1000 back if we maxed out the $5000 in the FSA? TIA!

You can get a tax credit for 20% of the last $1K--not a $1K credit. That's our situation (except x2, ugh!!) The dependent care FSA and child/dependent care tax credit rules are not aligned, which is incredibly frustrating.

So if you have only one child and make over $43K, you get:
- Credit of 20% of child care costs, up to $3K in costs, less any FSA reimbursements
- Up to $5K in your FSA pre-tax
- So if you max your FSA, you have $0 in eligible costs left. (You can't count different payments for each, sadly!)

If you have two or more children and make over $43K, you get:
- Credit of 20% of child care costs, up to $6K in costs, less any FSA reimbursements
- Still only $5K in your FSA pre-tax...
- So if you max your FSA and spend at least $6K, you have $1K in eligible costs left, and are eligible for a credit of $200.

I may not be explaining that very clearly but basically if you max your FSA and spend at least $6K on child care for two kids under 13, you get an additional $1K from the dependent care tax credit. If you have only one kid under 13, you're only eligible if you had less than $3K in your FSA. In both cases, you still want to max the FSA first if you think you will spend that much, since you get more benefit from that than from the credit.

NP. This was very clear. Thank you.