Determine Your Child Care Deduction Choice

Your Federal Income Tax Bracket and your Adjusted Gross Income (AGI) factor into which provides the greatest level of tax savings: the Dependent Care FSA, or the Child Care Tax Credit.

The Child Tax Credit applies a progressive percentage against your eligible amount of child care expenses. The percentage levels off at 20% for AGI above $43,000.

Example: one child, AGI above $43,000.
- $3,000 X 20% = $600

Flexible Spending Account tax savings are determined by your marginal Federal Income Tax Bracket. The marginal rates are currently: 10%, 15%, 25%, 28%, 33%, or 35%.

There are wide varations. Most families in higher tax brackets will see greater savings from an FSA.

Example: one child, tax bracket is 25%.

$5,000 X 25% = $1,250

Scroll down the page for a Child Tax Credit Table of Percentages and Federal marginal tax brackets.

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Children's Life Policies

Life policies for children comes in several flavors. Cash value policies such as whole life and universal life feature cash accumulation in a policy designed to last a life time. Term life policies provide a lower premium cost over a shorter time span.

Child Care Tax Credit (AGI) Table

AGI	Percent	AGI	Percent	AGI	Percent
< $15K	35%	< $27K	29%	< $37K	24%
< $17K	34%	< $29K	28%	< $39K	23%
< $19K	33%	< $31K	27%	< $41K	22%
< $21K	32%	< $33K	26%	< $43K	21%
< $23K	31%	< $35K	25%	> $43K	20%
< $25K	30%

Adjusted Gross Income (AGI) is defined in the IRS Federal Tax Code. It represents your total income, before deductions are applied.

Federal Income Tax Tables

Your FSA savings can be estimated by looking at your likely marginal federal income tax rate. An FSA lowers your taxable income, so you want to look at your tax bracket for your last $5,000 of income. Your income tax rate is determined by your taxable income, and filing status.

Interrelated

Determine Your Child Care Deduction Choice

Child Care Tax Credit (AGI) Table

Federal Income Tax Tables