How will contributing to my flex spending account (for dependent care) affect my tax refund at tax time?

Answer 1

The following refers to an account for one child.

The amount contributed to the flexible spending account will reduce your gross income (Box 1 of the W-2). If your marginal tax rate is more than the child care credit, then you benefit from the flexible spending account. Otherwise, you do not benefit from the first $3,000 put into your account.

The dependent care credit ranges from 20% up to 35% of the first $3,000 of child care (for one child). You have to compare your taxes with the FSA and no dependent care credit, or without the FSA and with the dependent care credit, to see which is better for you.

There may be advantages to the FSA if your expenses are greater than $3,000 for one child. The FSA for child care can go as high as $5,000.

If you have two children, you have to go through a similar comparison to see which is better. The difference is that you get to take a dependent care credit for up to $6,000 for two children, but your FSA is at most $5,000.

Answer 2

It really varies on your income level and number of children. If your income is low enough, it can increase (if you make more than $15000) or decrease your EIC (if you make less than $13000, roughly). You also do not pay social security or medicare taxes on this money which is beneficial if you are not over the social security maximum (~$95000). If you are in a high tax bracket, the flex account can save you 25% or 28% of the amount you put in the account when you file your taxes, but you'd only get 20% using the credit.

Your best bet would be to find a preparer who can look at your actual income and help you make a decision.

Answer 3

a newborn care flex spending association (FSA) is in many cases funded by way of voluntary earnings alleviation agreements alongside with your organization. The organization may additionally make a contribution. you may relish various advantages from having an FSA. Contributions made by potential of your organization may be excluded out of your gross earnings. No employment or federal earnings taxes are deducted from the contributions. Withdrawals to pay certified fees are loose. you may withdraw money from the account to pay certified newborn care fees regardless of in case you have no longer yet placed the money in the account. on the initiating of the plan twelve months, you should designate how lots you prefer to make a contribution. Then, your organization will deduct quantities periodically (in many cases, each and every payday) in accordance alongside with your annual election. you may replace or revoke your election provided that there is a transformation on your employment or kin status it extremely is laid out in potential of the plan. versatile spending bills are "use-it-or-lose-it" plans. in many cases, contributed quantities that are no longer spent by potential of the tip the plan twelve months are forfeited. hence, it extremely is necessary base your contribution on an estimate of the qualifying fees you've got in the process the twelve months.

Answer 4

The amount that you contribute will be deducted from your taxable income when you put it in, so it would increase your refund by the amount that you put in times your tax bracket.