Dependent Care account vs just claiming on taxes...

Re: Dependent Care account vs just claiming on taxes...

• hoffse member

  

  January 2015

  I would do the dependent care account.  It ought to work better for your cash flow.

  

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• vlagrl29 member

  

  January 2015

  we don't do daycare but preschool and we just deduct it off our taxes every year.  The preschool sends us an end of year report with how much we paid them.

  
  

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• maple2 member

  

  January 2015

  We do both, but we have 2 kids. We are eligible for the childcare credit up to $6,000 but are only allowed to put $5,000 in a dependent care account. Neither amount comes close to the amount we actually spend on childcare in a year. A couple of things you might want to check into before making your decision are:
  
  1) How much you are able to contribute to a dependent care account. This is important for a couple of reasons. First, you may be eligible to put more money into a dependent care account than you can claim as a dependent care credit. In our case, if we only had 1 child we would still be able to contribute up to $5,000 to a dependent care account, but we would only be eligible for the childcare credit up to $3,000, which means the dependent care account would save us the most money.  Second, you want to make sure that you will be prepared if and when you have to start paying the full, post-tax cost of daycare every month because your annual daycare costs are higher than your dependent care account limits. Or figure out how much you should plan to take from that account every month to balance your pre and post-tax payments throughout the year. At least for us, $5,000 doesn't go all that far in covering all of our childcare expenses.
  
  2) Whether you can withdraw money from that account before you have accrued it. At least in my experience, this varies from company to company, but it obviously affects whether you will be able to reap any benefits from the dependent care account when your child starts daycare or if you will have to wait a month or so. This really just affects your budgeting at the beginning.
  
  
  

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• KatieCutie05 member

  

  January 2015

  
  

  
  

  maple2 said:

  We do both, but we have 2 kids. We are eligible for the childcare credit up to $6,000 but are only allowed to put $5,000 in a dependent care account. Neither amount comes close to the amount we actually spend on childcare in a year. A couple of things you might want to check into before making your decision are:
  
  1) How much you are able to contribute to a dependent care account. This is important for a couple of reasons. First, you may be eligible to put more money into a dependent care account than you can claim as a dependent care credit. In our case, if we only had 1 child we would still be able to contribute up to $5,000 to a dependent care account, but we would only be eligible for the childcare credit up to $3,000, which means the dependent care account would save us the most money.  Second, you want to make sure that you will be prepared if and when you have to start paying the full, post-tax cost of daycare every month because your annual daycare costs are higher than your dependent care account limits. Or figure out how much you should plan to take from that account every month to balance your pre and post-tax payments throughout the year. At least for us, $5,000 doesn't go all that far in covering all of our childcare expenses.
  
  2) Whether you can withdraw money from that account before you have accrued it. At least in my experience, this varies from company to company, but it obviously affects whether you will be able to reap any benefits from the dependent care account when your child starts daycare or if you will have to wait a month or so. This really just affects your budgeting at the beginning.
  
  
  

  How do you find this out? 

  

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• Mom987 member

  

  January 2015

  I would definitely do the pre-tax dependent care account for sure.

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• maple2 member

  

  January 2015

  You should be able to get info on your dependent care account limit from someone in HR, or whomever gave you the info about the account in the first place. We get ours through a pretty major employer, so all our benefits info is easy to find on-line.

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• KatieCutie05 member

  

  January 2015

  Oh shoot, I just assumed the amount was the same as a tax credit but it looks like your right its only 3k for a tax credit, I thought it would be 5k which is what I can put in my dependent care account. Can you claim both if your daycare costs are higher? Here's one problem though, I lose whatever money I put in there if I don't use it. And our daycare is 680 per month (170 per week) and assuming he will start in may, that is 8 months or 5440 total cost. It should be fine but what about that crazy case where one of us loses our job or he can't be in daycare for some reason. After my sister had to quit her job and pull her son out of daycare because it got too expensive as he was in the hospital every other day.... I'm a bit apprehensive to just assume we will use all 5k. Also I plan to start looking for new jobs this summer\fall so idk how that account works if I leave my company. I wonder if for the first year its better to just lose the extra 2k deduction. Or if I can do both... I can put 2k in the Dependant care account and claim the other 3k on my taxes. Now im trying to penny pinch... Its only a 300 difference....I'm definitely going to have to pay a CPA next year... This is confusing me and taxes never confused me!

  

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• maple2 member

  

  January 2015

  This is an irs information site on the dependent care credit that might be useful. http://www.irs.gov/uac/Ten-Things-to-Know-About-the-Child-and-Dependent-Care-Credit You have to deduct any employer dependent care benefits from your dependent care credit, so you can't just double up. I have never run the numbers to figure out how to optimize benefits in terms of splitting between the care account and the tax credit so I don't know for sure how it would work if you tried to split the way you are describing. Since we have 2 kids, the tax credit is for a larger amount than the account limit, so we take full advantage of the account and partial advantage of the credit. Good luck making your decision. I don't know how likely it is that you will not end up using childcare, but for us the risk of possibly not using it felt so, so small that it was a no brainer to enroll in the dependent care savings plan. Maybe that risk is different in your situation.

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• soontobecapek member

  

  January 2015

  I haven't done daycare in awhile, but at $634 a week we chose the deduction. With that said, my youngest was in the hospital so much that taking care of it once vs monthly was easier on my stress level. Also because he was in the hospital sometime the bill varied.

  

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• blondie42107 member

  

  January 2015 edited January 2015

  We take advantage of the pretax dependent care account. It's better, for us, to do this instead of claiming in our taxes.
  
  Just know you can't do both. My friend did (not knowing the rules) and now two years later... Letters from the IRS telling them how much they have to pay back.

  

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• blondie42107 member

  

  January 2015 edited January 2015

  A big event like losing a job or a parent who had a shift change, etc qualified for a stop in the benefits per my employer but you should really talk with the benefits rep.

  

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• shakinros member

  

  January 2015

  Late to the party but I'd do the dependent care acct too. That's what we do for our 1 kid and we don't get any tax credit since we out the full $5K in.
  
  We actually use it as a savings/debt-reduction tool. We pay daycare in our monthly budget, then request reimbursements only twice a year. We get $2500 and apply it as a chunk to debt.

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