dependent care credit when pretax?

[Super Mom]

Ok, second guessing myself again. When the employee's pay the money in a dependent care FSA at work that comes out pretax, they don't also get the credit for that amount, right?

[David1980]

They have dependent care benefits on W-2 box 10?

Calculation is on page 2 of Form 2441. Lines 27-31. But basically if you are excluding $3,000 (or $6,000) or more you won't be able to get any credit.

[Super Mom]

Yes, box 10, saw software auto entry on page 2, just wanted to be sure no credit, that's what I thought! Thanks! I would have a lot of sleepless nights without the reassurance of people on this board!!!

[BP.]

Exclusion limit is $5,000 so if expenses exceed that up to $6,000, credit is available on the excess.

[MANDAN]

Exclusion limit is $5,000 so if expenses exceed that up to $6,000, credit is available on the excess.

So, if you only have one child, and child care expenses is over 6000 per year, then it's better off to do exclusion. Is that correct? Because for claiming credit, maximum amount for credit is $3000 per child.

[DaveO]

So, if you only have one child, and child care expenses is over 6000 per year, then it's better off to do exclusion. Is that correct? Because for claiming credit, maximum amount for credit is $3000 per child.

Maybe. A higher income taxpayer should take the exclusion to save FICA. A lower income person may qualify for a higher credit. Some states have a separate credit. In NE it's refundable for low income persons.

[David1980]

So, if you only have one child, and child care expenses is over 6000 per year, then it's better off to do exclusion. Is that correct? Because for claiming credit, maximum amount for credit is $3000 per child.

The exclusion is basically a dollar for dollar subtraction against the amount you can use for the credit. If you only have one qualifying child for the credit and are excluding $3,000 (or more) you won't qualify for a credit. If you have two qualifying children for the credit and are excluding $5,000 you potentially can still claim a credit for $1,000 of expenses assuming you paid $6,000 (or more). The calculation is on 2441 lines 27-31. Line 27 is $3,000 if one child $6,000 if two.

As far as which is better, it depends like DaveO said. The credit will of course be whatever the decimal on the form indicates on line 8 - .20 for income over $43,000 this year. So you could have a taxpayer in the 15% marginal tax bracket that gets a 20% credit or an exclusion that saves them 15%. If their total expense was $3,000 the credit would be better - but maybe they exclude $5,000 instead. On the other hand a taxpayer in the 33% marginal tax bracket would save more with the exclusion. It very much depends on the specific taxpayer's situation which is better.