FSA or Dependent Care Credit?

[Deleted]

I've always gone the FSA route, for the first 5K and got the credit on the other 1K, but now that I'm single and my AGI is going to be pretty low (like under 30K), I'm wondering if maybe the dependent care credit might not be a better route for me next year? 

The thing that is complicating things for me a little is one of my kids will be turning 13 in July and no longer eligible.  How does this work?  I know his expenses up to age 13 are allowed, but am I allowed the full 6K for two kids if one of them only has qualifying expenses the first half of the year?  I read in the IRS book how it doesn't have to be equal, where each kid has 3K of expenses, but they don't address how a phase out kid is treated, at least not that I saw. 

Younger son is 4 and 2015 will probably be my highest childcare year, probably 6K just for him.  Older son maybe $500 for some after school care and camps in June.  In 2016 expenses will drop a lot.  Younger son will be in Kindy and I don't think I'll even hit the 3K allowed for the credit. 

[Wisconsin Beth]

Aren't you supposed to be enjoying the fair today?  Stop being practical and go eat something deep fried that you can tell the rest of us about! 

ETA - I apologize.  I didn't look at what board this was on before making a smart ass comment.  Will remove if MPL wants me to. 

[Deleted]

Aug 28, 2014 14:02:21 GMT -5 Wisconsin Beth said:

Aren't you supposed to be enjoying the fair today?  Stop being practical and go eat something deep fried that you can tell the rest of us about! 

ETA - I apologize.  I didn't look at what board this was on before making a smart ass comment.  Will remove if MPL wants me to. 

LOL

That was YESTERDAY!  I'm back stressing about money now. 

[Deleted]

Ok, I found this in the publication.   www.irs.gov/pub/irs-pdf/p503.pdf

Yearly limit.
The dollar limit is a yearly limit. The amount
of the dollar limit remains the same no matter how long,
during the year, you have a qualifying person in your
household. Use the $3,000 limit if you paid work-related
expenses for the care of one qualifying person at any time
during the year. Use $6,000 if you paid work-related ex-
penses for the care of more than one qualifying person at
any time during the year.

And this...

To qualify for the credit, you must have one or more
qualifying persons. You should show the expenses for
each person on Form 2441, line 2, column (c). However, it
is possible a qualifying person could have no expenses
and a second qualifying person could have expenses ex-
ceeding $3,000. You should list -0- for the one person and
the actual amount for the second person. The $6,000 limit
that applies to two or more qualifying persons would still
be used to compute your credit unless you already exclu-
ded or deducted, in Part III of Form 2441, certain depend-
ent care benefits paid to you (or on your behalf) by your
employer

So, what I'm getting is.  Even if older son become non-qualifying halfway through the year, and even if I only paid say $500 in expenses for him during that first 6 months, I'm still eligible to use 6K for the credit correct?  If so, I really think I'm better going the credit route.  In fact, I'm thinking I screwed up going the FSA route this year. 

Then of course there's the fact that the FSA reduces my income for the EIC which the credit has no effect on. 

Is there something I'm missing or misunderstanding?

[Deleted]

Ok, never mind.  Just found out the DCC is non-refundable.  I'm back to the FSA being the no-brainer approach. 

[Deleted]

Aug 28, 2014 16:15:39 GMT -5 minnesotapaintlady said:

Ok, never mind.  Just found out the DCC is non-refundable.  I'm back to the FSA being the no-brainer approach. 

what does the bolded mean?  if you have more than $5K wouldn't you put the whole $5k in your FSA and then get whatever credit above that you're eligible for?  that's what I always did.

[Deleted]

Aug 31, 2014 7:55:32 GMT -5 @singlemominmd said:

Aug 28, 2014 16:15:39 GMT -5 minnesotapaintlady said:

Ok, never mind.  Just found out the DCC is non-refundable.  I'm back to the FSA being the no-brainer approach. 

what does the bolded mean?  if you have more than $5K wouldn't you put the whole $5k in your FSA and then get whatever credit above that you're eligible for?  that's what I always did.

A refundable credit is one you get even if you don't owe any taxes.

I have always done the 5K to the FSA and the other $1000 on the credit, it is a no-brainer if your income is above say 40K or so, but things get a little fuzzy when then income is really low.   Putting money in the FSA saves you your tax rate, but my tax rate is only 10% (plus 11% for state and FICA ).  The dependent care credit is income based and goes up to 35%.  At my income I would fall at about a 30% credit or $1800 on 6K of daycare expenses.  But, since I probably will only have about 6000 of taxable income, the most I could get of that $1800 would be $600, because it's non-refundable.

I'm starting to think the high percentages on the dependent care credit are like the 50% savers credit.  Unattainable credits that look good for the politicians that passed them.    Nobody can really get them because if your income is low enough to qualify you already don't pay taxes or enough to actually get that amount anyhow.