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Not sure if theres a better suited channel for thi...
# general
h
Not sure if theres a better suited channel for this question, but how can I found out if I can use an FSA Dependent Care money to pay for my son's daycare? He's in nursery in a yeshiva, and they are a registered daycare (per the school office, but they didn't know about whether FSA DC will be valid, and to their knowledge no one has ever tried paying them with FSA)
šŸ§” 1
Signing up for employer benefits, so I'd like to be sure before I lock up a whole lot of money in FSA dependent care that would otherwise be very hard to use
Also, can I use it for my son's nursery even if my wife is the primary caregiver (and currently not working)? Will I need to prove in any way that the childcare expense is "work related"?
c
I believe if your wife isn't working, you will need to pay taxes on the money at tax time.
I think both parents need to be working to be eligible for it at the end of the year.
p
The care provider doesn't need to know you're paying with an FSA. All they need to do is provide receipts and a tax id. In regards to spouse not working: is she a student? Looking for a job? These might be factors. I don't think you'll need to show proof of work in order to make a claim or file taxes, but this can be something that would be caught in audit.
h
She's currently not working nor actively looking for a job
m
So... You can definitely use it and I don't think they will catch that she isn't working... I used it last year and my wife wasn't working. Although when I learned it was illegal I stopped doing it.
If it's a registered day care you are good to use it.
c
When you file taxes the software will probably add the taxes back in if she doesn't have a W2 and isn't in school
m
Interesting
h
Hmm, so it's illegal? And I use an accountant to file taxes (could be he uses the software). I actually emailed him with my advice question, awaiting his response
m
If your wife doesn't work or go to school his response should be that you don't qualify for a DCFSA
r
What advantage does a DC FSA have over the regular Child/Dependent Care credit?
m
the dependent care tax credit lowers your taxes due but doesnā€™t increase your refund
r
So you end up in the same place, no?
(Aside for the opportunity cost of laying out the money)
p
No
c
Yes purposely lying on your tax forms is tax fraud. You can take the benefit during the year, you'll just need to pay it back at tax time. That isn't illegal.
p
The FSA is pre FICA you avoid payroll tax. It's better than the dependent care credit
šŸ‘ 1
Ie ss medicare
m
you also donā€™t need to pick one or the other, you can use both since your daycare costs are going to be more than the DCFSA max anyway
r
Is that true? I was always under the impression that they're mutually exclusive
m
you canā€™t double dip with the same dollar, but you can use them each for different dollars. so if you have 10k of expenses you could split it up
šŸ‘ 2
b
The max fsa is 5000. Max tax credit is on 6000 of expenses. Itā€™s only that last 1000 that you get the tax credit on (but it works). Some states have a larger credit - I believe ny is 9000
But if your wife has no income and is not a student, you canā€™t take it. In my experience the software added it back if there is no w2.
m
There should be a night kollel for women so we can claim that they are in school
#ShtarkTank
šŸ˜„ 1
b
Maybe it is worth registering for community college or something.
m
ChatGPT Summary of the above! 1. Both parents generally need to be employed or in school to be eligible for FSA Dependent Care. 2. The daycare does not need to know youā€™re using FSA; they just need to provide a tax ID and receipt. 3. FSA Dependent Care has pre-FICA tax benefits, making it generally more advantageous than regular Child/Dependent Care tax credits. 4. There are maximum amounts you can claim for both FSA and tax credits, and you canā€™t ā€œdouble-dipā€ but can divide costs between the two. 5. If one spouse is not working or in school, using FSA for Dependent Care will be reverse when you file your taxes
šŸ†’ 3
e
This is true, but only really relevant for those people who are earning below or right around the wage base. Given that one is a pretax deduction and the other a tax credit equal to 20% of eligible expenses, the best thing to do is going to depend on oneā€™s marginal tax rate as well as the marginal impact that reducing AGI could have on other aspects of their return.
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b
@eager-smartphone-39564 is there a general rule of thumb for what income (or AGI) one would be better than the other?
e
Hi Goldy - I am very against relying on rules of thumb. That being said, someone in the 22% tax bracket who is making below the wage base would trim close to $300 for every $1,000 they contribute to the FSA instead of claiming it as a tax credit which would yield about $200 in tax savings. But consider the possibility that this person is simultaneously contemplating switching their Roth 401(k) to pre-tax and/or selling a rental property with accumulated disallowed passive losses which would kick them down to the 12% bracket for a portion of the deduction...point is ask a sheila to your LOFP.
m
@eager-smartphone-39564 thank you for being an incredible asset to this community
e
@mysterious-tomato-10057 my pleasure
n
@eager-smartphone-39564 by wage base, do you mean max FICA? If not, I'll add that as a point--FSA loses some value above the FICA max.
šŸ‘ 1
Maybe it is worth registering for community college or something.
@bright-restaurant-33087 great point. Many moons ago I paid $400 for a community college course so I would be considered a full time student and be eligible for about $5k in gov't funded childcare.
b
Back in the days when you got kicked off your parent's insurance at 18 unless you were a student, it was pretty common for people to take a course or two to stay on insurance
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