"Tobi" <tbeetz[at]yahoo.com> wrote:

- quote -

Line 24 is zero, the smallest of lines 20, 21 or 23. The label
"deductible benefits" is probably throwing you, but if you look
at the instructions you'll see that this figure winds up on an
income statement somewhere. Doesn't apply to your situation.

Once you fix line 24, line 27, "Excluded benefits," will go to
$4999.

--
Phil Marti
Clarksburg, MD



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"Phoebe Roberts, EA" <Pho...[at]RobertsCPA.com> wrote:
- quote -

I actually just did page 2 of 2441 manually and here is what
I put (btw, I received $4999 from FSA)

line 12: $4999
line 13: $0
line 14: $0
line 15: $4999
line 16: $4999
line 17: $4999
line 18: $XXX
line 19: $XXX
line 20: $4999
line 21: $0
lien 22: $4999
line 23: $5000
line 24: $4999
line 25: $4999
line 26: $4999
line 27: $0
line 28: $4999

now instructions to line 28 say: Taxable benefits. Subtract
line 27 from line 22. If zero or less, enter -0-. Also,
include this amount on Form 1040, line 7, or Form 1040NR,
line 8. On the dotted line next to Form 1040, line 7, or
Form 1040NR, line 8, enter "DCB"

This is why I/TurboTax is including it! Is this wrong?

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"Herb Smith" <smithf...[at]aol.com> wrote:
- quote -

Thanks for the replies ... I actually just used TurboTax and
the program uses Schedule 2 (Form 1040A). There in line 17 I
enter $5000 and my income on line 18. The next item is in
line 22 which reads $5000 in TurboTax and next to it are
instructions to add this to line 7 of form 1040 with 'DCB'
written on the side.

TurboTax does it automatically and updates line7 to read
(income + $5000)!!!

Is TurboTax wrong?

Thanks!

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I believe the purpose is to detect whether you paid too much
social security tax, especially in the case of multiple W2s.
Some pretax deductions are taxed for SS (e.g. 401K) and some
arent.

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Tobi wrote:

- quote -

Fill out page 2 of the 2441.

Phoebe

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"Tobi" <tbeetz[at]yahoo.com> wrote:

- quote -

you have to do the 2441 form to show you spent the money so
it does not get added to your income it then saves you
income tax on the 5k and FICA taxes also (social security
and medicare)

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"Tobi" <tbe...[at]yahoo.com> wrote:

- quote -

You only the portion of the $5,000 that exceeds your child
care costs.

- quote -

You should consider which is better, a $600 tax credit or a
$5,000 tax deduction. If you are in the 15% or higher tax
bracket, the deduction is better since it would save you at
least $750 in taxes.

- quote -

Yes.

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- quote -

The $5000 doesn't end up on line 7. Schedule 2 (form 2441
for 1040 filers) documents that you spent it on child care.

--
Don EA in Upstate NY

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"Tobi" <tbe...[at]yahoo.com> wrote:

- quote -

I believe you are incorrectly reading the instructions for
Line 7. The FSA amounts ARE NOT included in Box 1 of your
W-2, therefore are not taxable income. The only time you
would add these amounts back to income is if you DID NOT
expend the funds for daycare.

- quote -

Assuming your qualified daycare expenses are equal to, or
exceed, $5000, the FSA is equivalent to a tax credit of
$1250. That assumes a marginal tax rate of 25%.

- quote -

Did you perform the calculations on the back of form 2441?

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- quote -

You need to file Form 1040 and complete Part III of Form
2441. If the entire $5,000 was applied to qualified
expenses, none of the FSA money gets added back into your
income.

Assuming you are in a 25% marginal income tax bracket and
that your salary is under the annual FICA ceiling, you
netted tax savings of $1,824 by using the FSA instead of the
child care credit. That's because the $5,000 was excluded
from both income and FICA taxes, on which the combined tax
rate is 32.65% (25% income tax + 7.65% FICA tax). You
would had to have earned $7,424 ($5,000 / .6735) after-tax
in order to have been left with the $5,000 paid for child
care expenses. That leaves a difference of $2,424.
Subtract out the $600 child care credit you would have
claimed had the expenses been paid from after-tax salary,
and you're left with a net tax saving of $1,824.

Frederick Lorca

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I have been participating in my company's FSA for daycare
expenses. I allocated $5000 for 2006 and used all of it. Now
that I am preparing taxes I notice that I have to add these
$5000 on line 7 of 1040A and therefore increase my total
income by that amount and therefore also my taxes.

What is the point then of FSA money if you have to pay taxes
anyways? state savings? social security saving?

I noticed that if I would have not done a FSA I would be
able to claim a $3000 x 0.20 = $600 tax credit.

Am I missing something about the FSA?

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