Hello! My wife's job has open enrollment for a DCFSA. Next year we will have a combined income of at least 193K. We have childcare expenses of a little over 14k a year for 1 child. I am looking at the interactions between the DCFSA and the Childcare Tax credit, and I think it may be a no lose situation. She can contribute the max of $7500 to the DCFSA, then we (filing jointly) can claim the max credit of $3000 without double dipping. Is this correct, or have I undercomplicated things?
Dependent Care FSA, Childcare Tax Credit- A no lose situation?
byu/SafetyPleasant520 intax
Posted by SafetyPleasant520
2 Comments
You wouldn’t be able to use any of the tax credit because your FSA election maxes out your allowed qualifying expenses.
>the max credit of $3000
The dependent care credit is not $3000 – the maximum *allowable expenses* are $3000, and then the credit is figured as a percentage of those expenses (20% at your AGI). Your allowable expenses for the credit are first reduced by any amount you put in a DCFSA, so you functionally cannot have both.
Max the DCFSA, it’s almost always going to result in greater tax savings than the credit.