Pre-tax Childcare Benefit and Tax Exemption Question

Updated on September 24, 2011
D.F. asks from Woodbridge, VA
5 answers

My son's father and I live together, but are not married. Son's father claims him on taxes because he gets more money for the exemption EIC and daycare tax credit than I would. I carry benefits for son, though. Can I use pre-tax childcare benefits to pay for childcare and have this arrangement still exist?

ETA - I forgot part of my question/explanation. I understand we can't "double dip" per say -
-say son's daycare costs 10,000 per year. can I use 5,000 pretax benefit, and father claim 5,000 daycare expense ?

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answers from Miami on

No, that would be having your son claimed twice. As Jo W said, you would both be flagged for audit. If you both file electronically, then the system will not take the second person to file as your son's social security number will have been claimed by the first person to file.

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answers from Boston on

The answer is still no. For a single child, you can use either the $5,000 flexible spending account or the $3,000 dependent care credit (it's $3K, not $5K).

Obviously for one child it makes sense to use the FSA because tax savings on $5K is better than tax savings on $3K. Whether or not you can use that while not claiming him as a dependent on your taxes is not crystal clear. There is some IRS wording that seems to indicate that you can do this (so he claims him for the general dependent deduction and you use your FSA) but you might want to ask an accountant just in case.

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answers from Washington DC on

The credit you are refering to is the Child and Dependent Care Expense Credit that up to $3,000 per qualifying person per year can be claimed. What I'm saying is that no matter how much you spent, not a penny over $3,000 per qualifying person with a $6,000 max, no matter how many qualifying persons there may be, can be included. Then only a percentage of that is deducted from the taxpayers tax liability (20 to 35% depending on the Adjusted Gross Income of the taxpayer).
You can pay as much as you like towards your sons daycare, but it won't help you taxwise or hurt your son's father because you don't claim your son as your dependent. If you did and claimed the credit, the first $3,000 of your pre-tax dollars would be dissallowed and only the taxed monies spent would be considered.
Since you aren't eligible for this credit in the first place, you end up having to report these monies that were not taxed to your income at the end of the year and you get taxed on them anyway. It is most beneficial to let whoever is eligilbe take the credit, (your son's father since he claims the child) and pay the first $3,000 which is all that can be included in claiming the credit in the first place. After that, it is a mute point. Hope this answered your question. If not, feel free to email me with any questions.


answers from St. Louis on

No because what you are basically doing is taking the tax benefit twice. It should flag on an exception report if you try to do it since the pre-tax childcare benefit must be tied to the minor's social security number. What I mean by flagged is it will show up as an audit situation for both taxpayers. Whether or not they actually audit will be a gamble but legally you cannot both take the credits.

Daycare tax credit and the pre-tax childcare are two different ways of attacking the same animal. One for those that have employers that offer the deduction the other for those that don't.

I don't know if you want to do the math but you could take the deduction if he doesn't. Thing is that will increase his taxable income an take part of the earned income tax credit. What you have to figure mind you is how much you would save by lowering your taxable income in real money. In other words if it lowers your taxable income by $5,000 and you only pay in the 10% range you are only saying $500. If he loses say $750 in his earned income tax credit you have lost money even though it lowers your taxable income by $5,000.

Clear as mud?



answers from Pittsburgh on

I understand the rules to be exactly what J.B. described. So, no, only one claim regardless of how expensive your childcare is.

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