Dependent Care FSA, or not?
It’s that time of year again: should you enroll in a Dependent Care FSA, or take the federal child tax credit instead?
[This is not legal advice. These calculations are based on 2007 tax schedules (only slightly outdated, still close enough for estimating), and do not take into consideration state or local tax savings, so if you're on the income border, savings could go either way. Under some conditions, you may be able to have an FSA and still take a portion of the tax credit. Everyone has their own tax situation, so consult your tax professional before making any decisions.]
If you are filing as single head of household, and have one qualified dependent:
- choose the tax credit if your taxable income is less than $33,000
- otherwise choose the FSA
If you are filing as single head of household, and have two or more qualified dependents:
- choose the tax credit if your taxable income is less than $33,000
- choose the FSA if your taxable income is between $33,000 and $43,000 and qualified expenses are $5000 or more
- if your taxable income is between $33,000 and $43,000 and qualified expenses are less than $5000, consult your tax adviser to decide
- choose the FSA if your taxable income is greater than $43,000, regardless of amount of expenses
If you are married filing jointly or as single head of household, and have one qualified dependent:
- choose the tax credit if your taxable income is less than $33,000
- choose the FSA if your taxable income is greater than $33,000 and expenses are $5000 or more
- if your taxable income is between $33,000 and $65,000 and expenses are less than $5000, consult your tax adviser to decide
- choose the FSA if your taxable income is greater than $65,000, regardless of amount of expenses
If you are married filing jointly or as single head of household, and have two or more qualified dependents:
- choose the tax credit if your taxable income is less than $65,000
- otherwise choose the FSA
If you are married filing separately, consult your tax advisor. (Basically, your FSA limit is only $2,500 instead of the standard $5,000, and I didn’t feel like doing the math — even simple that it is.)
By the way, none of these savings will be accurate if you leave money on the table by not using up all the FSA funds! If you are not organized enough to track your medical expenses, save your receipts, and file for reimbursements, the simpler federal tax credit is probably right for you!
