I used my dependent-care flexible-spending account at work to
pay for my two daughters' daycare expenses in 2011. But I still
had way more expenses beyond what I had in my FSA. Can I take the
child-care tax credit for any of the extra expenses?
Yes. Because you have two kids and had more than $5,000 in
child-care costs, you can claim a portion of the tax credit even
though you have already used pretax money from your FSA for their
care.
Here's how the two tax breaks play out: With a dependent-care
flexible-spending account, you can set aside up to $5,000 in pretax
money to pay for care for your children under age 13 while you
work. With the child-care tax credit, you can claim up to $3,000 of
expenses for one child under 13 and up to $6,000 for two or more
kids. You can't use the same expenses to get both tax breaks. It's
usually more valuable to use the FSA for child care than it is to
take the tax credit because money in the FSA escapes Social
Security and Medicare taxes as well as income tax (see
FSA or Child-Care Credit?
for details). Also see IRS Publication 503
Child and Dependent Care Expenses
,
If you pay for care for two or more kids under age 13, you can
max out your FSA and still claim the tax credit for up to an extra
$1,000 in expenses, which would cut your tax bill by at least $200.
If you have just one child and you've maxed out your FSA, you
aren't eligible for the credit because the limit is $3,000 in total
expenses; you can't use any excess expenses toward the credit.
Families who earn less than $15,000 can claim a tax credit for
35% of their child-care expenses; families who earn more than
$43,000 get the smallest credit, worth 20% of their eligible
expenses. This is a tax credit, not a deduction, so it lowers your
tax bill dollar for dollar.
Expenses that qualify for both the spending account and the
credit include the cost of daycare, a nanny or babysitter,
preschool, before-school or after-school care, and even the cost of
summer day camp for children under age 13, if you spend the money
on care so you can work or look for work. If you're married, both
you and your spouse must have a job (or be looking for work) or be
a full-time student to qualify. To claim the credit, file Form 2441
with your federal tax return. For more information about the
child-care credit, see
FAQs on the Child-Care Tax Credit
.
For more tax information for this year's filing season, see
7 Tips for Filing Your 2011 Taxes
.