dingodog_1...[at]yahoo.com wrote:

- quote -

You have calculated the tax credit savings using the WRONG
amount in both years. In 2006 the tax available tax credit
after using the FSA is [(3,000 - 1,500) x .20]. Without the
FSA the credit would have been (3,000 x.20). So, the credit
went down $300 when the FSA was used but the FSA savings
were $375 so you were $75 better off.

In 2007, the FSA saved you $1,250 and the credit was ZERO.
If you had not used the FSA, the credit would have been
(3,000 x .20) or $600. Using the FSA saved you $650.

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My employer has FSA dependent care account and I decided to
make use of it in 2006 and 2007 for child care expenses.
Afterwards, I decided to do the math (see below) and it
seems that I loose money from this election although the FSA
provider's info tells me that there's no way to loose if you
use their FSA. Based on my calculations, I would benefit
from the FSA only if my effective tax rate is higher than
40%. Could you maybe tell me what's wrong with my math?

2006 2007
Facts
Eligible childcare expenses 3,200 9,800
Selected FSA deduction 1,500 5,000
Maximum FSA deduction 5,000 5,000
Maximum childcare credit 3,000 3,000
AGI child credit threshold % 20% 20%

Assumptions
Effective tax rate 25% 25%

Calculation
Tax Credit Savings 640=3.2k*20% 1,960 =9.8k*20%
FSA Account Savings 375=1.5k*25% 1,250 =5k*25%
Diff 265 710

Total diff (loss) 2006 & 2007: 975

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >