Looking to make the most of your Child Care Tax Credit, or Child Care Tax Deductions? A Dependent Care Flexible Spending Account (FSA) may generate greater tax savings for your child care, and daycare expenses.
You can not claim credits in both programs for the same expenses. The Child Care Tax Credit is usually best for those families in the 10% or 15% tax bracket. If your family is in the 25% or higher bracket, you will likely generate bigger tax savings using an FSA.
The number of children with day care expenses affects the equation. An FSA works best if you have one child enrolled in a day care, are in the 25% tax bracket or higher; and pay payroll taxes. Your tax savings may be $1,030 or higher.
Don't stop at the head to head comparison. An FSA may offer other tax savings as well: payroll taxes, alternative minimum tax, child tax credit, educatoin tax credit, state income taxes, and earned income tax credit.
Expenses paid for dependent care that enables you and your spouse to be employed are eligible. Your child must be under the age of 13, and the services must be for the physical care of your child, not education, meals, etc.
Help for the disabled
People over the age of 13 who spend at least eight hours per day in your home, and who is incapable of self-care. Dependent care expenses for an invalid parent, a disabled adult, or an older child with developmental disabilities would qualify.
Tax issues get complicated, so please consult your tax advisor.
