Dependent Care Savings Account Contributions when MFS

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vingonza
vingonza Member Newcomer
edited November 2023 in General

Hi Everyone,

Here's a question I've been having trouble getting a concise answer to, even when researching….

I live in California (so community property). My wife and I file our taxes MFS for student loan repayment purposes (keeps my AGI as low as possible since I'm a gov employee pursuing PSLF).

My wife and I have two kids that will be in daycare for 2024 and each of our employers offer a Dependent Care Savings Account (DCSA) option.

Question:

Can my wife and I each contribute $2,500 ($5,000 total for 2024) to a DCSA with the intention of further lowering our AGI if we plan to each claim one child and have the daycare bill each parent separately for the specific child we plan to claim on the 2024 MFS return?

The past couple years I've just been claiming the $2,500 myself without my wife opting in with her work for her $2,500, but since it's open season, I want some clarification on whether we can each contribute in this specific scenario without running into issues. I'm just trying to ensure that I'm not leaving money on the table (both tax savings and student loan repayment savings by lowering AGI further).

Thanks!

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Answers

  • CoryF
    CoryF FreeTaxUSA Agent
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    Thank you for this question and explanation, Vingonza.

    There is some explanation required for qualifying for the Dependent Care Credit that is associated with your question. As Married Filing Separate status, the only way to qualify for this tax credit is if you lived apart from your spouse for the last 6 months of the year, your home must be the home of the child, and you pay more than half the cost of keeping up this home. Please read this in Federal Publication 503 under What's Your Filing Status? If you live in the same house as your spouse, you can't qualify for the Care Credit at all, and any pre-tax contributions to the DCSA will then become taxable on your 2024 tax return defeating the purpose of lowering your AGI. This is doubly sure if you were planning on both you and your spouse claiming the Care Credit with one child on the separate tax returns living in the same home.

    However, if both you and your spouse do live in separate homes with the applicable children, and you qualify for the Dependent Care Credit under these rules, then the contribution to the DCSA could be an option for lowering your separated AGI on each tax return.