When you put money from your paycheck into Dependent Care Benefits (generally a Dependent Care Flexible Spending Account (FSA)), you did not pay income taxes on these amounts.
They were taken out before all other taxes which means you saved not only income tax, but also Social Security and Medicare which is an additional 7.65%.
People Regularly Pay Me For Information On Dependent Care Expense Accounts But You Can Have It For Free…
- The amount of your FSA contributions is not included in Box 1 taxable wages on your Form W-2.
- It is correct that this is deducted from your eligible expenses in figuring your credit to avoid double dipping of tax benefits since you’ve already received a benefit on these amounts.
- The Child and Dependent Care Credit is not a deduction from income.
- The amount is a credit against your tax liability of 20-35% (depending on your income) of eligible expenses.
This might not really be clear to you, visit our office today to speak with a Generational Wealth Specialist for more information.