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Childcare expenses question... medical flex plan or not?

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She11ybeanz posted 2/21/2014 10:14 AM

So... open enrollment for me for my insurance is in April and my insurance is going up to $90 out of pocket as opposed to the $11 I was paying...but I guess that's a drop in the bucket in the grand scheme of things so I'm going to suck it up....cause I have really really good insurance!

BUT.... for those of you who pay for daycare....is it better to have the daycare costs deducted pre-tax and put into a medical flex account and reimbursed to me for those costs or is it better to pay out of pocket and just claim it on my taxes at the end of the year?

I know absolutely NOTHING about how those medical flex accounts work... but I want to do whatever will cut my out of pocket costs down as much as possible since my insurance is going up. How much can you claim on your taxes and how much do you really get back when claiming daycare? Yes...I am an accountant...but I am NOT a tax accountant...so I'm a little fuzzy on what all that entails....

Thoughts? Suggestions? Any personal experience would help!

million pieces posted 2/21/2014 10:56 AM

I asked my tax accountant the same question last year. He said take it out in a dependent flex spending account and then claim you costs at the end of the year. So both. That is what I have done for two years now and IRS hasn't told me I was doing something wrong.

Dreamboat posted 2/21/2014 11:03 AM

Do you itemize your deductions? If not, then I am not sure that you can claim dependent care on your taxes (but I am not an expert, someone hopefully knows for sure).

I preferred using the dependent care flexible spending account than taking the deduction. It just seemed easier. It is a separate account than the medical flexible spending account and cannot mingle the funds. You also need to accurately estimate your expenses because these accounts are "use it or lose it". Plus you need to provide the taxpayer ID to get reimbursement so you cannot use the funds to pay a babysitter that is not claiming income (like a teenager or a family member)

HTH

Lucky2HaveMe posted 2/21/2014 11:14 AM

Day Care provider here:

Taking the $ out of your paycheck pre tax is usually better for you. Say you pay $100/wk and have that held out pre tax, you will probably only see about a $80ish difference in your net pay - yet you can get reimbursed for the entire $100 you put in. So you save about $20/wk.

Downside - you have to use it or lose it. So be sure you account for any time you do not have to pay for childcare and plan accordingly.

If you do it pre tax, you cannot also claim in on your taxes as an expense as you did not pay taxes on that $ so taking a tax rebate on it is illegal (those that have are lucky they haven't been audited). If you actual pay out for child care is more than you have taken out pre tax, you can claim that difference on your taxes.

Also, there is a $3000 limit on the tax credit amount you can claim on your taxes. In my area, that wouldn't begin to cover 1/2 of what child care costs, so def better to take it out pre tax.

eta: as it is a tax credit, you do not have to itemize deductions to take in on your tax return.

[This message edited by Lucky2HaveMe at 11:16 AM, February 21st (Friday)]

million pieces posted 2/21/2014 11:23 AM

If you do it pre tax, you cannot also claim in on your taxes as an expense as you did not pay taxes on that $ so taking a tax rebate on it is illegal (those that have are lucky they haven't been audited). If you actual pay out for child care is more than you have taken out pre tax, you can claim that difference on your taxes.

That is what I meant to say. You can only withhold so much in pretax, so I claim the remaining $$ as a tax credit. Yes, I spend that much money on child care

Lucky2HaveMe posted 2/21/2014 11:26 AM

Yes, I spend that much money on child car

Remember: Good child care isn't expensive, it's priceless.

She11ybeanz posted 2/21/2014 12:52 PM

Yeah...my cap on pre-tax in the flex spending account is $5,000 and I will pay out $7,282 this year in childcare expenses so I should be able to claim $2,282 on my taxes and still do the other $5,000 pre-tax and save money that way! Sounds like a good plan to me!

ProbableIceCream posted 2/22/2014 21:17 PM

Opportunity cost. If you spend so much on childcare that you can't buy food, it's not worth the money. :)

stroppy_wanadoo posted 2/24/2014 11:29 AM

Shelly - be careful that you are setting aside money in the appropriate account. A dependent care account (for child care expenses) is different than a flexible spending account (for medical expenses). I don't believe that you can take child care expenses from the flexible spending account, or vice versa.

At my company, there are two separate accounts I have to set up - flexible spending and dependent care. The limits on what you can contribute to each are different as well.

Might be helpful to talk to HR and make sure you are electing the correct item.

She11ybeanz posted 2/24/2014 12:05 PM

Well....I'm hoping that since I had a qualifying event that even though I don't have a dependent care account set up but have a medical care flex account set up.... that they will let me set up the dependent care account having that I had a large qualifying event of a high increase in childcare occur recently. Plus, I had to move in order to afford to pay it. But, I guess I won't know what they say until I submit the forms. I'm hoping for the best though.... we shall see.

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