Dependent Care Credit and Dependent Care Savings Plan

[kcladyjane]

I was trying to decide what method will save me the most money in 2016. We have a dependent care saving program at work (pre tax dollars). If I did the pretax program at work and took out $5200 per year to pay my sitter can I also claim the dependent care credit on my taxes?  Right now I was just getting $600 credit since they max out at $3000 allowable dependent care expenses.  Household income approximately $80K....$5200 per year in childcare expenses....

[Deleted]

I've run the numbers every which way from Sunday and can't come up with a situation where the dependent care credit is a better deal than the FSA through work.  Do you only have one child?  If so it's a no brainer as you can get the deduction on 5K (max for the FSA) as opposed to the credit on 3K for one child.  If you have two kids, you can put the 5K in the FSA and still claim the credit on the remaining $1000 (3K allowed/child, so 6K - whatever you were reimbursed through FSA).  You can't double dip and claim the credit if you used the FSA.

With the credit you're getting a 20% credit on that 3K for the $600.  But if you put the full 5K in the FSA you will save your marginal rate on 5K (if 15% bracket then that's $750 right there).  PLUS you don't pay SS taxes on this money so another $350.  Then if you have state taxes you save that amount too, and it's reducing your AGI so it might make you eligible for other credits.

So, long story short.  With one kid in 15% bracket you save about $1100 plus state rate going FSA compared to the $600 with the credit.

[kcladyjane]

Thanks! I only have the one child so the FSA is the way I should go....