Last minute preschool decision - any way to mitigate costs?

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Topic Author
sergio
Posts: 727
Joined: Sat Jun 20, 2015 6:52 pm

Last minute preschool decision - any way to mitigate costs?

Post by sergio »

We were thinking of putting our almost-3-year old in preschool Jan 1, 2022. Due to personal circumstances, we are going to have the kiddo start October 1, 2021.

The cost for 3 months would be about $3000. Is there any way to mitigate the costs of this? Our AGI is expected to be around $100k, in the 12% federal bracket and 5% for state.

I checked with my employer regarding the dependent care FSA, and they said that I cannot change my current election of $0, unless there's a qualifying event. Most likely one would be my wife going back to work, which could happen. In this case, we'd save roughly $510 in taxes.

There's also the dependent care credit, which covers 50% of expenses at our AGI, or $1,500. Is this credit as straightforward as I think it is? Does this require both parents to work? My wife was thinking about going back to school for a few months and then start working next year.

We're in a really stressful spot here with personal and financial issues, so I'm looking for help to get this sorted out. Thanks everyone :happy
Jjsfr
Posts: 7
Joined: Sun Jul 18, 2021 1:29 pm

Re: Last minute preschool decision - any way to mitigate costs?

Post by Jjsfr »

Changing care providers as is a change in cost of care are both a QLE for DCFSA but in your situation at your AGI I suspect the tax credit is a much better deal.

The tax credit is straightforward and factored when you file your taxes. If you'd like to look at the dependent care worksheet that would be a good exercise, but really you can expect that credit to come back at half of your post tax care expenses. I believe it is only for 2021 at this point. With current laws DCFSA may be better for you next year.
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Beachey
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Joined: Wed Sep 02, 2020 9:54 am

Re: Last minute preschool decision - any way to mitigate costs?

Post by Beachey »

Jjsfr wrote: Fri Jul 23, 2021 3:41 pm Changing care providers as is a change in cost of care are both a QLE for DCFSA but in your situation at your AGI I suspect the tax credit is a much better deal.
While I agree with this, that a change in the cost of care is normally a qualifying event, you will likely not be elgible for the full amount of Child tax credit. The amount of credit is limited to the lesser of each parent's (married filing jointly)individual income. Since it appears your wife does not work, it appears she has no income.

One of the exceptions is if you are a full-time student, you are then normally credited with $250 for one child/$500 for two children for each month you are a full-time student. However, this is based upon the normal credit of $3000/$6000. Any DCFSA withholding reduces that amount. So even if she goes Sept-Dec that is only 4 months or $1000.

However, for 2021 the dependent care limit is $8000 for one/$16000 for two. This would imply $667 a month or $2667 for four months though I have not seen this written anywhere officially.

You also want to confirm with your employer whether you can roll over any funds from 2021 into 2022 depending on how exactly you can estimate your expenses for this year.

https://www.irs.gov/pub/irs-pdf/p503.pdf

However, if you are able to take the credit if your wife is going full-time, I agree the credit should be more lucrative.
Jjsfr
Posts: 7
Joined: Sun Jul 18, 2021 1:29 pm

Re: Last minute preschool decision - any way to mitigate costs?

Post by Jjsfr »

Beachey wrote: Fri Jul 23, 2021 6:53 pm
Jjsfr wrote: Fri Jul 23, 2021 3:41 pm Changing care providers as is a change in cost of care are both a QLE for DCFSA but in your situation at your AGI I suspect the tax credit is a much better deal.
While I agree with this, that a change in the cost of care is normally a qualifying event, you will likely not be elgible for the full amount of Child tax credit. The amount of credit is limited to the lesser of each parent's (married filing jointly)individual income. Since it appears your wife does not work, it appears she has no income.

One of the exceptions is if you are a full-time student, you are then normally credited with $250 for one child/$500 for two children for each month you are a full-time student. However, this is based upon the normal credit of $3000/$6000. Any DCFSA withholding reduces that amount. So even if she goes Sept-Dec that is only 4 months or $1000.

However, for 2021 the dependent care limit is $8000 for one/$16000 for two. This would imply $667 a month or $2667 for four months though I have not seen this written anywhere officially.

You also want to confirm with your employer whether you can roll over any funds from 2021 into 2022 depending on how exactly you can estimate your expenses for this year.

https://www.irs.gov/pub/irs-pdf/p503.pdf

However, if you are able to take the credit if your wife is going full-time, I agree the credit should be more lucrative.
Oh yeah really good catch there on the SAHP catch.
Topic Author
sergio
Posts: 727
Joined: Sat Jun 20, 2015 6:52 pm

Re: Last minute preschool decision - any way to mitigate costs?

Post by sergio »

Thanks for the replies guys. We're thinking my wife may just pick up a few part time hours this fall, basically enough to capture 50% of the preschool cost. The credit is quite generous and we'd hate to miss it.
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