millinghill[at]yahoo.com wrote:
- quote -


No, it's all perfectly legal and above-board! ;-)

- quote -

I'll leave that to someone more knowledgeable about NY state tax.


-Mark Bole

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- quote -

I have sufficient withholding (got a sizeable refund last year) and
have not had any financial or family status change since then. I
don't even mind submitting all the dependent care fsa receipts. With
this in mind, I would still like to request the max $5000 because my
wife may increase her work/salary in the coming year. Since it
returns to taxable income, am I doing something illegal or peronally
financially damaging by doing so?

- quote -

I live in New York State. Would you be aware of any similar rule here?

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Arthur Kamlet wrote:
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No, all the work is not wasted, even if the spouse has no earned income.
You still saved 7.65% payroll tax (Soc. Sec. and Medicare) on the
amount in the FSA.


- quote -


You should enroll and only put $3K in the FSA, not the full $5K.

Note: if you are sure your reimbursable expenses will be at least $5K,
so that you won't forfeit any, then you can still get the partial
payroll tax benefit mentioned above -- of course, if your salary already
exceeds the annual maximum subject to social security tax, this benefit
is greatly reduced (to 1.45% Medicare tax savings only). You may also
decide you'd rather not reduce your credits under the SS system this way.

- quote -

Yes, it will go back on your Form 1040 Line 7 as wage income for income
tax purposes with notation "DCB" on the dotted line. If you do not have
enough withholding to cover this, it can cause an unexpected hit to your
refund or balance due.


- quote -

The *credit* is based on any excess out-of-pocket qualified expense that
wasn't already provided via the FSA. (Even with only one child, up to
$5K of employer benefit can be used if the other limits are met.) So if
you used $4K in the FSA and had $4.5K total qualified expense, the
remaining $0.5K can be used for the credit.


- quote -


Change "and" to "or" -- it is the LOWER of the two, not combined
(contrasted to, say, IRA contributions where one earned income can be
spread across both spouses). For example, if one spouse has no earned
income, then no credit and no tax-free employer benefit is allowed.

- quote -

No, see above. However, there are special rules that allow you to
"fake" earned income for a spouse who is a full time student or disabled.

Finally, as usual your state rules may greatly affect this as well. For
example, the California the child/dependent care credit is refundable,
which for some lower-income taxpayers would make it a much better deal
than the employer-provided benefit.

-Mark Bole

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<< ------------------------------------------------------- > << 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 (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <fd79a770-339c-4b73-ac4d-680b50ec0686[at]e1g2000pra.googlegroups.com> ,
<millinghill[at]yahoo.com> wrote:
- quote -


The child care credit is based on the lower of


i) Up to $3000 expense for one child, 6000 for two, and

ii) Up to $5000 of child care FSA, and

iii) The lower of taxpayer earned income and spouse earned income



See form 2441 to see how this actually works.


So if each spouse has at least 3000 of earned income, then
5000 of FSA child care can be used.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

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<< ------------------------------------------------------- > << 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 (2007) - All rights reserved. > << ------------------------------------------------------- >

Dear Readers:
Wikipedia mentions: "If one spouse earns less than $5,000 then the
benefit is limited to whatever that spouse earned. Many plan
coordinators do not warn of this limit. This limitation can create a
situation where the earning spouse sets up a Dependent Care FSA and
dutifully sends in receipts to withdraw funds and then at tax time the
FSA is effectively eliminated and all the work wasted. See IRS Form
2441 Part III for details."

I have 3 kids in daycare. We expect my wife's income to be a little
over $3,000 next year (well below the 5,000 limit mentioned). Should
I _NOT_ enroll in the dependent care fsa offered by my job? I read
Form 2441 Part III, but don't understand what happens if she makes
less than $5000. Does the remainder of the pre-tax fsa money somehow
convert to taxable income?

Any advise appreciated.
Thank you.
Theodore

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<< ------------------------------------------------------- > << 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 (2007) - All rights reserved. > << ------------------------------------------------------- >