Dependent Care Flex spending account.. worth it?

[KAYLI'S DAD]

My open enrollment is up at work and I was looking into the dependent care option we can do. The maximum I can do is $5000 which I would use for daycare/preschool. I will spend way more than that anyway. My question is does anyone know if it is really worth it? I think I read you save on the initial tax savings of the 5000 plus it lowers your yearly income by 5000 also.

Anyone do this or know about it?

 

[ColoradoDisneyFreaks]

It's definitely worth it, depending on your tax bracket, you could basically be saving up to 30% of your first $5K of daycare. It does spread that expense out over the course of the year, instead of all at once, but if you got little ones in full time daycare, you'll probably be done claiming by June or July, and just be able to get reimbursed for the rest of the year. A little bit of paperwork, and the rest is a nice bonus!

So here's how it works, say you make $55K and your tax rate is 25%, you need to earn $6,250 to bring home $5K. If you're using your Flex Spending, you only need to earn $5K to pay your daycare $5K, make sense? Plus, it lowers your taxable income, because it comes out of your check pre-tax, by that $5K so that instead of paying income taxes at 25% on $55K, which is $13,750, you would be paying income taxes of 25% (assuming that you are more than $5K over your rate bucket) on $50K, which is $12,500. So, you've saved $1,250 by taking that money out pre-tax and using it, and another $1,250 by lowering your taxable income. Not too shabby!

 

[ILoveMyGirls]

My DH has that type of account at work and OMG it has helped out so much. There are medical issues that have not been covered well and the money in there has helped us pay for the difference.

 

[maddiesmom0116]

It is so worth it, The tax savings are great, easy and very little amount of paperwork needed to submit for your reimbursements. DD is in school FT now, so we no longer use it, but we have for the last 4 years with no drawbacks.

 

[Shelly888]

Does anybody know if we can use this for babysitters as opposed to a daycare center? I work on weekends, and there are no daycares open around here. THanks!

 

[MyDizneyBoyz]

My DH has that type of account at work and OMG it has helped out so much. There are medical issues that have not been covered well and the money in there has helped us pay for the difference.

I think you're referring to a Health Care FSA, not the OP's Dependant Care FSA. The dependant care FSA is ONLY used for paying for childcare - it's easy to confuse the two.

OP - Here is an excellent online worksheet you can run througn which will help you decide if the dependant care FSA is appropriate for your particular situation. It's a very handy tool and will let you know right up front which will save you money - using an FSA or taking the tax credit:

https://www.fsafeds.com/forms/dcfsa_worksheet.pdf

 

[tlbwriter]

Does anybody know if we can use this for babysitters as opposed to a daycare center? I work on weekends, and there are no daycares open around here.

You can use it for any care provider. However, your babysitter will have to claim the income and you will have to have their SSN or tax ID number.

 

[KAYLI'S DAD]

I think you're referring to a Health Care FSA, not the OP's Dependant Care FSA. The dependant care FSA is ONLY used for paying for childcare - it's easy to confuse the two.

OP - Here is an excellent online worksheet you can run througn which will help you decide if the dependant care FSA is appropriate for your particular situation. It's a very handy tool and will let you know right up front which will save you money - using an FSA or taking the tax credit:

https://www.fsafeds.com/forms/dcfsa_worksheet.pdf

I think if I did the worksheet correctly there is a $600 difference on the spendable income at the bottom. $600 more on the left column. I dont really understand what that final result means though.