FSA + Dependent Care Credit

[msindc1]

Folks:

Clients have 2 children, each receiving childcare costing $10,000+, all properly entered in Screen 33.1 and 33.2.  Dad has deferred $5,000 into his employer's FSA (which is reported in Box 10 of his W-2).  Here is Part III of their Form 2441:I cannot figure out why Line 29 is $1,000.  I mean, of course I understand the math, but its basically saying that you can't use the dependent care credit if you have an FSA, but that isn't so.  As long as you have enough expense in addition to the FSA-paid expenditures, you can use the credit.

Am I misunderstanding?  Doing something wrong? 

Micah 

[sjrcpa]

The maximum child care expenses that can be considered for 2 or more kids is $6,000.

Dad got $5,000 tax free, leaving $1,000.

The 2441 is correct.

[msindc1]

Two things:

1.  Dad did not get $5,000, in the sense that the money was his own income that he sent to his FSA, though it is true that by putting it in the FSA it is tax-free.

2.  More importantly, I understood that if you have adequate childcare expenses, you can allocate the FSA to pay some of the expenses and the dependent care credit to cover the other expenses. 

I read IRR 1.21-1, but unfortunately it does not address the impact of an FSA on the availability of the credit.  Lots of sources on the internet answer the question in the affirmative, but I can't exactly prepare a tax return on the say-so of the internet!  🙂  So I guess I'm looking for some definitive answer as to whether ADDITIONAL expenses can use the dependent care credit after the FSA has been used for other expenses.

M.

[sjrcpa]

Read the 2441 instructions. They may refer you to the $5,000 dependent care benefit and child and dependent care credit Code Sections.

I know it is correct but do not have time to research it for you.

[TaxGuyBill · Accepted solution]

Look at the last sentence in §21(c).

The amount determined under paragraph (1) or (2) (whichever is applicable) shall be reduced by the aggregate amount excludable from gross income under section 129 for the taxable year.

https://www.law.cornell.edu/uscode/text/26/21#c