DCAP -vs- DCTC

[Guest BeneGal]

As of 2003 the Dependent Care Tax Credit (DCTC) is $6000 per year for a married couple but the DCAP allowance is still $5000.

Scenario:

One of the spouses participates in a DCAP (2003 calendar year plan) for the full $5000 allowed for the year. They have childcare expenses totalling $8000 in 2003. In April 2004 when they file their 2003 taxes... can they claim the last $1000 as a DCTC so that the total tax benefit they received is $6000??? :confused:

[papogi]

The answer to your question is yes, they can claim the additional $1000 on their taxes. You might want to check out:

http://www.125plan.com/FF-DependentCare.pdf

It gives some examples and a chart showing that most people are better off taking the credit rather than the DCFSA. The cut-off dollar amount changed.

[Guest BeneGal]

Wouldn't most people be better off using their DCAP for $5000 worth and their DC Tax Credit for $1000??? I know there are specific wage cut-offs where the DC Tax Credit would be better but using them both... this way they are saving Federal, State AND FICA on $5000 and Federal only on $1000 rather than just Federal on $6000?

Any opinions or information is always appreciated! Thanks for the link.

[papogi]

It still depends on your income. Check the chart showing 2 kids and $6K daycare expenses at the link above. They take into account federal and FICA (but not state). It is not true that all people would be better off using a DCFSA and the credit to take up anything over $5K. Some people are better of forgetting the DCFSA completely. It is due the difference in the federal withholding tables that payroll uses, and the table or credit percentages used in the child care credit. They don't mirror each other. The differences make it such that each person needs to run the numbers based on their income. The results may surprise many people.