Can I use both Dependent Care FSA and Child Care Credit? How to in FreeTaxusa
I am married filing jointly with my wife. We have 2 kids in two separate daycare. We both have Dependent care FSA through our jobs and we contributed a total of $5000 between us. We want to claim the Child care credit since the IRS allows you to apply up to $6,000 of dependent care expenses to your taxes (2 or more qualifying kids). In our case it would be $1000 ($6000 - $5000).
- Am I right about this?
- How do I actually claim this using Freetaxusa? Under deductions/credits > Child care credit : I can enter my childcare provider name and address etc. It then ask "how much do you pay for each person's childcare?
A. Do I input the actual total amount of childcare for the year (e.g ) for each child which would be thousands of dollars? OR
B. Do I input the $1000 under ONE child and leave the amount under the other blank?
FYI: When i do option (B), I see my refund increase at the top of the screen, however I get a message stating:
" Unfortunately you don't qualify for the child care credit for the following reasons:
You have zero child care expenses eligible for child care credit because you participate in a dependent care benefit plan through work. Dependent care benefitS taken out of your wages reduce the amount of child care expenses available for the credit.
This confuses me as on one hand I see the refund increasing and on the other hand I am getting this message. I need to know if I am doing the right thing. Thanks in advance
Answers
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Thanks for asking. Typically, if your FSA does not meet the IRS maximum for the dependent care credit, a portion of what you paid out of pocket will be eligible for the credit. In your case, it seems that it would be most helpful to contact Support from within your account so that a helpful customer support agent can view your account, discuss specifics with you, and be able to determine how everything is being calculated.
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Thanks for your response. I did figure it out.
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I am having the same issue you had. How did you figure it out?
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@simps2036 When entering your W-2, make sure you enter the dependent care benefits listed in Box 10. Then, when you enter the provider information, enter the full amount that was paid to the provider. The software will then subtract the dependent care benefits reported on your W-2 from the qualified expenses to only calculate the credit based on the care amounts paid to the provider out of pocket.
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I’m having a similar concern. I did do the FSA 5k max but we paid 12k in childcare. I was under the impression we could still get some Child care credit do to being way over the 5k in expenses. 1 child married filling joint.
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Hi Cmw2016,
No, if you only have one eligible child, the maximum is $3,000 in expenses for the Child Care Credit. This IRS link provides an example of how dependent care benefits from your employer would reduce the qualifying expenses for this credit.
Basically, the $5,000 you received in benefits from your employer is used to reduce that $3,000 down to $0 qualifying expenses for the Child Care Credit. So, even though your child care expenses were much more than that, you still would not get the Child Care Credit on your return.
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even if I fully funded it? Employer did not contribute a cent of the 5,000
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Hi Cmw2016,
You already get an income adjustment (subtraction) for contributing to the FSA. When you fill out the child care section, you must enter the expenses paid and what was used from an FSA and the software makes the calculation for you.
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Hey I'm in the same boat as you. It says I don't qualify for the child care credit and even shows $0 for the credit. However, my refund actually went up. Did you figure out why this is?
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I am married filing jointly with my wife. We have 1 child. We spent about $15K in daycare expenses and maxed out the $5K Dependent Care FSA, which was entered in the W2 section.
I inputted the full $15K but the software told me that I don't qualify for the the Child Care Credit. The Deductions/Credit summary page shows $0 for the Child Care credit. However, my refund ended up going up by like $200.
Can someone explain why my refund went up when I supposedly don't qualify for the credit?
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Hello Mat6777,
It is hard for us to know exactly what happened since we can't see your return as it currently is.
What may have happened is until you got to the Child Care Credit screen, your dependent benefits reported on line 10 of your W-2 may have been taxed. Once the software confirmed that you did pay for child care when you went through the Child Care Screens, it would have removed those dependent benefits from your taxable income. Since your taxable income would have gone done, your total tax liability would have gone down as well, which would have resulted in you getting more of your refundable tax payments refunded and increased your refund even though you didn't get an additional credit.0
