New Daycare limits

[SLuskin]

I see that for the daycare credit starting next year, you can consider $3000 of expense for 1 child and $6000 for 2 or more. But the limit for cafeteria plans is still $5000. What would then be the advantage of someone with 2 kids using the cafeteria plan? Will you be able to run the first $5000 through the cafeteria plan and the last $1000 as a tax credit? thanks.

[Guest CWells]

Although I'm not a tax guru, my suggestion would be for you to review IRS Form 2441 and its instructions (both of which can be found on the IRS website). As I recall, amounts received as reimbursement from a dependent care flexible spending account will reduce the available credit. However, it stands to reason, that with the new limits, a participant may be able to use both a FSA and the credit. Again, I'm not a tax professional, so you'd need to talk to someone who is.

[Lisa Hand]

Please note SEC. 204, © of the EGTRRA states, "Effective Date. - The amendments made by this seciton shall apply to taxable years beginning after December 31, 2002."