Today Blaine in Cleveland, OH is a proud new daddy. His problem? My wife and I are being bombarded with offers for pre-tax deductions for childcare expenses since the birth of our first child this past summer.
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How can I decipher whether this would be the way to go versus simply taking a deduction directly from the IRS come next April.
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Hey Blaine,
Congratulations of the new baby!
But bombarded? By whom? You can only take advantage of the childcare exclusion through
your employer.
Trust me, if the option is available to you, it is an excellent direction to go, if you are
paying childcare anyway.
Look at it this way, let’s say you put ,000 into the pre-tax plan.
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If you’re in a 28% tax bracket for IRS and a 5% tax bracket for the state, plus 7.65%
for social security (this money comes off the top, before SS withholding) – that’s
40.65 % – your savings = $1,626
And you get that money right now. In your paycheck.
Your alternative, the Child Care credit – the maximum credit is 0.
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00 – if your
income is only $10,000!
For most people, it is $480.00 (income of $28,000 or more) AND you won’t get the
money, or tax reduction until you file your return.
So, that pre-tax arrangement is worth more than an extra $1,000 – RIGHT NOW.
The only drawback – you must tell them in advance how much you plan to put into
it to pay your care providers. If things change and you don’t spend all the money
you’ve put in, you’ll lose it.
You’ll find answers to all your tax problems – and all kinds of tax information, when you need it, where? At TaxMama.com
- Ask TaxMama :: Where taxes are fun and answers are free
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