Fit to be tied, this is the most...

[srm775]

Where are you getting your information from?

http://www.bankrate.com/brm/itax/tips/20010228a.asp

This matches up perfectly with what I pulled earlier directly from the IRS. It's a credit, but it's not a dollar-for-dollar credit. The credit is 35% of the expenses, and you can claim up to $3,000 of expenses for one child ($6,000 for two or more).

I'm guessing that it's structured as a "credit" rather than as a deduction so that it can help people who don't itemize (who are mostly going to be low- to middle-income).

FULL DISCLOSURE: I ain't a tax guy, but I work closely with lots of 'em and I've been utilizing this credit myself for a couple years.

What I was referring to was a pre-tax pay-roll deduction Flexible Spending account (that sounded like what he was talking about), which is capped at $5,000 per year. Mid way down, you can see what I'm talking about HERE. A flexible spending account is often used in lieu of a child care credit.

 

[the_bird]

Gotcha. I was assuming he was talking about the credit because he's in the middle of doing his taxes and never mentioned the FSA.

 

[FlyingHorse]

The max credit (i.e. it is pre-tax expense) you can get for daycare expenses is $5,000 per year. Doesn't matter how many children are involved, it's capped at $5,000.

EDIT: man, I type too slowly...

I think you're talking about a Dependent Care Flexible Spending Account (DCFSA), which is a set-aside of pre-tax dollars to pay childcare expenses. It is capped at $5k (less if you exceed income thresholds).

The credit discussed in this thread is different. It is actually a credit (reduction in your tax liability). The two are related, in that if you use the DCFSA, you reduce the amount of available credit limit. Bird's linked article above explains it pretty well (or as well as any IRS gibberish can be explained).

Which one you should do -- DCFSA (if your employer even offers it) or Credit -- depends on how many kids you have, how much you pay for childcare, and your marginal tax rate.

 

[the_bird]

You don't want to use the term "credit" when talking about an FSA; it's not a credit, as noted it's a reduction of pre-tax income (not the same thing). A "credit" has a specific definition in the world of taxes.

 

[TexLaw]

AFAJ, You may still want to send her a 1099, even if you do not have a SSN. Just note that she refused to provide one. I do not know if it is necessary, but in the event something hits the fan, it is just one more thing that showed you tried to do what is right.


TL

 

[srm775]

I think you're talking about a Dependent Care Flexible Spending Account (DCFSA), which is a set-aside of pre-tax dollars to pay childcare expenses. It is capped at $5k (less if you exceed income thresholds).

The credit discussed in this thread is different. It is actually a credit (reduction in your tax liability). The two are related, in that if you use the DCFSA, you reduce the amount of available credit limit. Bird's linked article above explains it pretty well (or as well as any IRS gibberish can be explained).

He never actually said whether it's a payroll deduction or credit, I don't believe. But from what he was describing, it sounded more like a pre-tax deduction, which changed is his refund by $500.

 

[FlyingHorse]

Thanks to this thread, I just realized that I missed out on a $217 credit when I filed... I thought the DCFSA precluded me from taking the credit. It did, when we had 1 kid. Now that we have 2 kids, the credit ceiling bumps to $6k, and I can take the credit on the part of the $6k that wasn't covered by DCFSA.

Thanks, HBT

 

[AFAJ Brew Guy]

Thanks to this thread, I just realized that I missed out on a $217 credit when I filed... I thought the DCFSA precluded me from taking the credit. It did, when we had 1 kid. Now that we have 2 kids, the credit ceiling bumps to $6k, and I can take the credit on the part of the $6k that wasn't covered by DCFSA.

Thanks, HBT

Ah yes, HBT improving beer, taxes, and life in general!

AFAJ, You may still want to send her a 1099, even if you do not have a SSN. Just note that she refused to provide one. I do not know if it is necessary, but in the event something hits the fan, it is just one more thing that showed you tried to do what is right.


TL

I did send her a 1099, I believe after you are another member mentioned it. Thanks for the advice on that. I am pretty sure that I am covered if I do end up with an audit. I have the copy of the 1099 that I sent her, our original contract, and canceled checks. If they isn't enough then, the IRS can kiss my arse!

Now to end the confusion, what I am talking about here is the tax liability credit. We do not have an FSA for childcare, so that is not the issue. They way that the tax law works is that you are entitled up to a 35% credit from the amount that you spend in child care. In our case the amount of the credit is 20%. I am not to sure how that amount is calculated, and if I had enough beer I might try to figure it out. But considering we have two kids in day care, this amount is equal to us getting about 2.5 months of our child care costs "back".