Child and Dependent Care Credit versus Dependent Care FSA

Forum|Forum|3 years ago
September 28, 2022
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My AGI was $236k in 2021, and estimated to be between $250-300k for 2022, married filing jointly. Which is more advantageous-using a DCFSA for the maximum amount of $5,000, or using the child and dependent care credit? Or, can you do both and get the credit on expenses paid above the $5,000 DCFSA amount? I'm very confused about the differences between these two, qualifying for them, phaseout limits, and what is best for my income level.

Nancy M5

The Dependent Care Credit is phased out as adjusted gross income increases in 2021, but not in later years. (You mention both 2021 and 2022 in your question.) This article explains the phase-out for 2021: The Ins and Outs of the Child and Dependent Care Tax Credit. This is also a good reference for the other requirements for taking the dependent care credit, such as the age of the child (12 or younger at the end of the year and a dependent on your return) and who can provide that care (not your spouse or another dependent on your return). The amount of expenses that you can claim has increased significantly with the passage of the American Rescue Plan, to $8,000 for one qualifying child and $16,000 for two or more qualifying children.

The Dependent Care Flexible Spending Account may save you even more tax dollars, however. The contributions you put into the FSA are made with "pre-tax" dollars. This lowers your adjusted gross income (AGI) which could in turn affect other calculations on your Federal or state returns that are based on AGI. The limit on FSA contributions for 2022 remains unchanged from 2021 at $5,000.

You can use both the FSA and Dependent Care Credit on your return, except that you can't use the same expense for both!

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