Child care decuctions for high expense families

[JudiAU]

Does anyone know how to maximize tax savings due to high child care expenses. Can I take both the child tax credit AND the dependent care account if I have high expenses? Everything I've read online says that I can't take both credits for the same expenses.

THis year I have a $6000 dependent care account (maximum) but have a lot more expense. Can I direct the other expenses towards a child tax credit?

If I can't, is one of them a better option for high expense families? I know that the dependent care account relieves you of both income tax and social security but I max out of social security anyways. I am begining to wonder if the dependent care account was a good idea.

 If I have high child care expenses, can I benefit from both a dependent care account AND the child care tax credit. Everything I found online keeps repeating that I can use the same expenses for both credits. I have a dependent care account for the maximum this year but have $16,000 more in expenses.

[sunflower.mama]

For sure you can't use both.  Either or.  Of course many people have expenses that exceed the maximums but it's one or the other.  The dependant care credit is for people who don't have access to a dependant care account.  Which would be better for you depends on your tax income bracket.  Since the credit is a max $600 per child, you'd need to do the math to see if deducting $6000 or whatever from your taxable income would net you more than the $600.  If not, than the administrative hassle isn't worth it.

And to be clear, the child credit is a different thing from dependant care credit.  The child care credit is $1000 per child no matter what your child care costs are. 

[mamadonna]

You can only do both if you have two children.  Then you can do the dependent daycare account for one and the expense credit for the other.

I wish I could figure out exactly how much I would save doing it one way or the other, but I've never quite been able to do that...it's just so complicated.

But my general understanding is that the higher your income, the better off you are doing the dependent care account since the higher your income, the lower the percentage you get back for the credit.

[sunflower.mama]

You COULD do both if you have 2 kids I guess, but it still makes sense to do whichever nets you the most tax savings.  1 kid = $600 credit, 2 kids = $1200 credit.  You can double the amount you contribute to the dependant care account for 2 kids.  If you look at your taxes from this year, and figure out your rate, then you could calculate how much a deduction of $6000 would net you.  If you'd save more than $600 - do the DCAP.
 

Originally Posted by mamadonna 

You can only do both if you have two children.  Then you can do the dependent daycare account for one and the expense credit for the other.

I wish I could figure out exactly how much I would save doing it one way or the other, but I've never quite been able to do that...it's just so complicated.

But my general understanding is that the higher your income, the better off you are doing the dependent care account since the higher your income, the lower the percentage you get back for the credit.

[mamadonna]

It would be lovely if it worked that way, but I don't think most dependent daycare accounts do.  For example, I can contribute a maximum of $5000 to my account whether I have one kid or twenty.

And it's still hard (at least for me) to figure out net tax savings.  For example, the tax credit doesn't net me $600 savings.  This year, the credit for ds2 figured out to be $200.  And then how much does that $5000 pretax benefit me?  It lowers my taxable income, potentially lowers social security payments (although I personally don't pay into ss), I get to pay $5000 of my childcare expenses pre-tax, etc. It's a pretty complicated situation.  I suppose I would really need to consult a tax professional to really understand the full implications and savings.
 

Originally Posted by sunflower.mama 

You COULD do both if you have 2 kids I guess, but it still makes sense to do whichever nets you the most tax savings.  1 kid = $600 credit, 2 kids = $1200 credit.  You can double the amount you contribute to the dependant care account for 2 kids.  If you look at your taxes from this year, and figure out your rate, then you could calculate how much a deduction of $6000 would net you.  If you'd save more than $600 - do the DCAP.
 

[sunflower.mama]

Ahhh - didn't realize $5K was the cap but it is.  An online calculator shows that if you factor the 10% marginal federal income tax rate and 7.65% ss tax rate into the $5K you save $882.  Obviously you'd save more the higher your marginal rate.  So if you only qualify for $200 of the credit...you definately should choose the DCAP.