Today TaxMama hears from Melissa in Texas with this question. “ I would like to sign up for my employer’s cafeteria plan for the preschool child care expenses. It will allow me to pay for about $5,000 of the child care tax free. But my son’s daycare is over $11,000 a year. Can I claim the child care credit for the remaining $6,000+ on my itemized 1040? If I can only do one or the other, with which one I would come out ahead?”
Dear Melissa,
I was just looking at the Form 2441, page 2, to see what would happen if you used the $5,000 flexible spending allowance. https://www.irs.gov/pub/irs-pdf/f2441.pdf
Yup, it would wipe out your child and dependent care credit.
That’s OK. The credit is only worth $600 to you, for one child ($1200 for two children).
But not paying any taxes at all is worth much more!
…$375 – You save your share of Social Security 7.5%
$1,250 – Your share of your IRS taxes 25%
…-0- – State taxes in Texas – 0% ————$1,625.00 – Total –
So, personally, I’d opt for the cafeteria plan.
But, when you file your tax return next year, try to enter the data into Form 2441 anyway. Who knows what laws will have changed by then, possibly allowing you to use some additional expenses.
And remember, you can find answers to all kinds of questions about cafeteria plans and other tax issues, free. Where? Where else? At TaxMama.com.
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- IRS Form 2441 :: Child and Dependent Care Credit
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