Dependent care Flex Spending account.

[KAYLI'S DAD]

Does anyone use this and think its worth it? My open enrollment is up and I have the option to do this for daycare. The max I can do is $5000 and my daycare is little over $8000 a yr.

1. I dont know if its worth it dealing with sending in a form every week or month.

2. How does it affect you claiming daycare on your taxes at the end of the year?

 

[chimilady]

I did it for the first time each year and yes, I feel it's worth the money. If you pay every week you can submit every week. If you pay ever month, you can submit every month. I forget the savings I calculated but it was pretty significant. I can't answer #2 as I haven't filed taxes yet, but I spend about 14K per year, so for me, it was a no brainer.

 

[mikehn]

Of course it is worth it from a tax savings perspective

 

[bgirldeb]

You can only use the FSA or claim on your taxes for daycare, not both. That is, I'm not sure how it works when you go above the 5000 in your FSA, but any money reimbursed can not be claimed.

 

[mistysue]

It's worth it because somehow when you go to file your taxes, the FSA amounts don't show up as earned income, so you don't pay income tax or the SS/Medicare portions. You save 10% more than if you just deduct the money, plus sometimes it lowers your total income amount enough that you qualify for more deductions than you would have if you only deducted it. It can build upon itself depending on how close your income is to different cut off lines.

 

[Fjobe]

I've had the maximum amount of $5000 taken out for the last 4 years for my younger 2 kiddos. You cannot reclaim that $5000 on your taxes for double savings. It really hasn't been any trouble claiming the money. I just submit my payments via the company website every couple of months, and usually by October I don't have to submit anymore claims and having enough to cover the rest of the year. The money is automatically transferred to my checking when it becomes available.

Also, last year we were still able to claim an additional $1K beyond the $5K from the flex spending on our taxes. I'm not sure if that amount was based on number of children receiving childcare. It is the only time it has been that way.

 

[alyssa810]

It's absolutely worth it; I'm able to do my reimbursement completely online (finally, this is the first year that I didn't have to FAX my paperwork in- who still uses faxes anyway LOL). I've been doing the max since my son started day care and doesn't make much of a dent in what we have to pay for his tuition, but it's worth it again, from a tax perspective. We get a weekly receipt from day care, and I just upload that to the website from work, and I'm reimbursed directly to my checking account, which then goes to pay the next bill. My DH and I take turns paying tuition; he pays one week, then I pay, then we use the reimbursement to pay. It works out easy enough for us.

 

[threecrazykids]

Years ago when I had my kiddos all in daycare at the same time I basically used mine as a savings account. You don't HAVE to claim it every time you pay daycare...you can do your claims whenever you want. I continued to pay my daycare bill every week and then made a huge claim in mid November and used it for Christmas! I then made the 2nd claim at the end of the year for whatever was left for the December care.

You can claim the difference between what you paid in dependent care and the $5000 on your taxes I believe.

 

[staceyeileen]

I use it and get the max $5k taken out of my pay which works out to be $192.30 per biweekly paycheck. You generally cannot do both the daycare care FSA and claim the childcare tax credit on your taxes. You have to figure out which one works out better for your financial situation. You MAY be able to use both if you have more than one child in daycare, but the tax credit would be only be applied to the amount over and above the $5k in the FSA. No double-dipping. But I only have one child so I never looked into that aspect much.

I pay my daycare quarterly (gets me a 5% discount ) so I only have to submit a claim 4x per year. For some reason the company my account is with doesn't even make me submit receipts, which is totally awesome. All I do is fill out a form online. I used to have to scan and fax in receipts at the old company we used which truthfully was kind of a pain if you're not organized, but still worth it for the savings. As money gets put into the FSA account, it comes right back into my checking account via direct deposit. Basically I get paid on a Friday and on Monday I get the direct deposit from the FSA!

Here's how the math works... let's say you are in the 25% tax bracket and your daycare cost for one child is $8,000 per year.

CHILDCARE TAX CREDIT
20% tax credit of up to $3,000 of expenses

= $600 total savings

DAYCARE FSA
25% income tax savings of $5,000 in FSA = $1,250
5.65% medicare & SS tax savings of $5,000 in FSA = $282.50
(+savings if you pay state income tax. I don't so didn't include this.)

= $1,532.50 total savings

So doing the FSA instead of the tax credit saves you over $900.

 

[JennCa]

It is very worth it!!!

Jenn

 

[LamieMom]

We also use the dependent care flexible account. Now we wait until the end of the year or just into the new year to get the full sum reimbursed and then use that to partially fund the kids' 529 accounts. That same tax free money gets us a deduction or credit (can't remember which) on our state income tax.

 

[sookie]

Does anyone use this and think its worth it? My open enrollment is up and I have the option to do this for daycare. The max I can do is $5000 and my daycare is little over $8000 a yr.

1. I dont know if its worth it dealing with sending in a form every week or month.

2. How does it affect you claiming daycare on your taxes at the end of the year?

It saves me a lot of money, because it brings down my taxable income by 5k. That means you pay less taxes overall.

The excess can be written off (the 3k) as the childcare tax credit - talk to your tax advisor. You can do the form weekly or monthly - I do mine monthly as I pay for my childcare monthly. If you pay weekly, have them sign weekly - all you are getting is a signature, so it is no big deal. You will probably sign up for direct deposit, so you will get the money back in a few days in most cases.

Do it! It is worth it, especially since you have high child care costs. I was nervous at first, but I have done it for many years now and it has been a lifesaver.

 

[sookie]

You can only use the FSA or claim on your taxes for daycare, not both. That is, I'm not sure how it works when you go above the 5000 in your FSA, but any money reimbursed can not be claimed.

The 5k on the FSA actually reduces the amount on her taxable income; so if she makes 80k, she now looks like she actually makes 75k on her w2, reducing her overall tax liability. Which can be very helpful - this can put her in a lower tax bracket, etc.
The 3k above that she spends can possibly be deducted on the childcare tax credit as well.

 

[KAYLI'S DAD]

Can you only withdraw the money that has been taken out of your check? (192.50) for bi weekly?
So I pay the daycare $340 every 2 weeks and then can submit a claim for the 192.50 every 2 weeks also. Is that how it works?

 

[sookie]

Can you only withdraw the money that has been taken out of your check? (192.50) for bi weekly?
So I pay the daycare $340 every 2 weeks and then can submit a claim for the 192.50 every 2 weeks also. Is that how it works?

Flex spending accounts for dependent care will only reimburse back to the parent what has been paid in for the month. But, you can send in the forms for what you have paid in, and when that money comes into the account, they will pay it back to you.

For instance:

Let's say my childcare is $500 a month.
I will have the daycare sign off for the $500 a month and I send in the form for that much. But if my account only has $192.50 paid in it - they will go ahead and send me that much. When my next payment of $192.50 comes in from my payroll - they will send me that as well (as soon as they process it) via direct deposit.

They will only reimburse for what has been put in though - so via direct deposit, when that money hits the account, a few days later they will automatically put the 192.50 in my account - like clockwork.

Since I do monthly payments, I usually just have 192.50 hitting my bank account every two weeks regularly - like the OP, my childcare costs exceed 5k so I exceed the expected amounts I put in.

 

[Golf4food]

You only get out what you have paid in, so if it is your first year, you won't get a reimbursement until after your first paycheck of the year, so you will possibly make a couple or three payemnts up front without receiving any reimbursement, and that reimbursement will likely not be for the same amount you paid out up front (ie: we pay $170 per week but the first reimbursement for $192 would be in the third week of January, so by that point we had paid $510 but got back only $192.) Of course, our daycare costs are in the neighborhood of $8840 per year, so of course you would never get back all that you are paying out, you are merely lowering your taxable income by that $5,000 and saving a lot on the subsequent taxes. Just be prepared for that first month feeling a little tighter than expected. Once you've been in the program, however, your final December payment will likely fall in the next January so it will feel "normal" the second year. Hope that made sense.

 

[mikehn]

Lets say your annual salary is 50k. You set up a dependant care flex account for 5k. Through payroll deductions, your employer sets aside 5k and you use that money to pay for childcare. At the end of the year, the IRS only taxes you on 45k salary, not your full 50k salary. That's a nice tax savings.