[kelly614]

It's time for open enrollment at work and I need to decide if a Daycare Flex Account makes sense for us. We have three years left to use up our remaining $25,000 or so adoption tax credit (adopted a sibling group and one more through foster care in 2007). Since we really don't have any tax liablity right now because of the credit, is there any tax benefit to doing a daycare flex account?

[loveajax]

Gosh, that is a tough one (the sad thing is math used to be my strong suit!). I think I would use it anyway because I believe it will reduce your adjusted gross income. And is it possible that you could actually still have more money left to be refunded (i.e., the credit doesn't cover all your tax liability)?

I like it for the convenience factor. The Y (where DD goes) just has my Flexspend Visa number and automatically deducts its payments from there.

[minibus]

I would think that if there were a chance that you'd be able to claim all (or more) than 25K in tax liability (like if your tax liability for the next 3 years were 10K/yr for 30K total) then you'd want to claim the daycare FSA as well -that would save you tax liability on the daycare money, too. If you're not going to be able to use all the 25K credit in the next 3 years, then no, I don't think that claiming daycare money would help.

[sheababy]

I would do it either way. It may not help but in the end you don't want to be saying-oops I could have saved some money if I had used the flex account. It is a great convenience in my opinion. Also your take home pay will be a little bit more because you are not being taxed on the amount you contribute.

[DannieAS]

Originally Posted by sheababy

I would do it either way. It may not help but in the end you don't want to be saying-oops I could have saved some money if I had used the flex account. It is a great convenience in my opinion. Also your take home pay will be a little bit more because you are not being taxed on the amount you contribute.

yup, I just found that out this week at my work as well....my friend who uses this for two children says she used this and then any other out of pocket for daycare she does the tax thing.....works out well.

[ladyjubilee]

Originally Posted by kelly614

It's time for open enrollment at work and I need to decide if a Daycare Flex Account makes sense for us. We have three years left to use up our remaining $25,000 or so adoption tax credit (adopted a sibling group and one more through foster care in 2007). Since we really don't have any tax liablity right now because of the credit, is there any tax benefit to doing a daycare flex account?

If you do decide to go with the flex account, just be sure to budget for that first paycheck deduction. When I worked DCFSA customer service, we were always getting calls from folks who discovered that the deduction was taken---but at the same time the daycare bill was due. Reimbursements aren't necessarily instantaneous, which mean there could be a double expensive from the employees paycheck (meaning say $150 daycare bill for the week AND $150 taken out as DCFSA deposit). Its not a big deal, just something to consider when budgeting.


Oh, and while it won't really apply while you're getting the adoption credit, keep in mind that sometimes DCFSA can prevent filers from taking other deductions which may be more of a tax advantage.