20Dukes11 wrote: ↑Wed Apr 21, 2021 8:56 am
Beachey wrote: ↑Wed Apr 21, 2021 8:29 am
20Dukes11 wrote: ↑Wed Apr 21, 2021 7:24 am
Another lurker here who is trying to decide whether to adjust my contributions to our current $5,000 limit DCFSA. We've already contributed 4 months' worth ($1,666), but our total AGI is well below $100k (probably somewhere in the high $80s/low $90s). Our childcare expenses for the year will be a little more than $15k.
If my math is correct, I believe our total tax rate would be 22% (Fed) + 5.25% (NC state) + 7.65% (FICA) = 34.9%
Any help would be greatly appreciated - thx!
The general consensus would be you would be better off asking your employer to stop the DCFSA contributions and take as much of the tax credit as possible. The only reason you might not want to is this will increase your AGI by ~$3,333. In the $80K/$90K AGI area, it is unlikely to create a tax cliff or under unforeseen consequence.
I just want to make sure I'm not missing something. We have one child and will have close to $15,000 in child care expenses. If I keep
contributing to the current DCFSA up to $5,000 max, then wouldn't I still have ($15,000-$5,000) = $10,000 in eligible childcare expenses that I could claim the tax credit for?
The maximum expenses for the credit with one child is $8,000. Your FSA election is subtracted from that $8,000. If you elect $5,000 in FSA, you will only have $3,000 available for the credit, giving you a maximum $1,500 credit.
I haven't plotted every FSA value, but in my fiddling I've noticed that either maxing FSA or stopping FSA is better than leaving FSA at $5,000.
Edit: Here is the 2020 Form 2441 using the updated 2021 values.
Line 27 is the credit base. 3,000/6,000 --> 8,000/16,000
Line 28 = Your FSA election (substitute $5,000 for the example you gave)
Line 29 = The new credit base. $8,000 - $5,000 = $3,000