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Subject Author Date
Dependent Care Flexible Spending Account - Does it save money? Tobi 03-18-2007
Posted by Rod on March 19, 2007, 2:04 am
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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?

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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Posted by rick++ on March 19, 2007, 2:04 am
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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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Posted by Phoebe Roberts, EA on March 19, 2007, 2:04 am
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Tobi wrote:

> 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.

Fill out page 2 of the 2441.

Phoebe :)

<< ======================================================= >>
<< 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 (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Tobi on April 9, 2007, 2:13 am
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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.

> 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.

>> 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 =3D $600 tax credit.

> 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%.

>> Am I missing something about the FSA?

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

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!

<< ======================================================= >>
<< 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 (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Tobi on April 9, 2007, 2:13 am
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> Tobi wrote:

>> 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.

> Fill out page 2 of the 2441.

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?

<< ======================================================= >>
<< 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 (2006) - All rights reserved. >>
<< ======================================================= >>

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