Seeking Info/advice on Flexible Spending Acct. for Childcare Expenses

Updated on November 12, 2007
K.O. asks from San Antonio, TX
5 answers


Since I just started back to work recently and we have our little one in daycare, my husband and I are contemplating enrolling in the Flexible Spending Acct. for daycare expenses which his employer provides. Just needed some explanation on how this works exactly(the paperwork they provide can be somewhat confusing!) and if it saves you more money versus claiming the child care credit on your taxes. Any info you could provide would be quite helpful.

Thank you.

K. O.

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So What Happened?

I want to thank everyone for the wonderful and informative responses to my request. Everyone was quite helpful and now I understand the whole process much better. Overall, I think it will be beneficial for my husband and I to participate in the FSA for both daycare and medical and we are enrolling for 2008. Thank you again.

More Answers



answers from Dallas on

If you spend a lot on childcare then the FSA will probably be better than using the tax credit. The way you can figure out how much you'll save is by crunching the numbers. You can get the tax table and childcare tax credit form on Hypothetically, say you make $100,000 a year and you pay $5,000 in childcare. So you would end up paying taxes on $95,000 instead of $100,000. To make it simple, say you're in the 25% tax bracket, so instead of paying $25,000 in taxes you would pay $23,750 for a savings of $1,250. Compare that to the tax credit where I think you only get a max of 20% back, in this scenario, 20% of $5,000 would be $1,000, so you would save more money using the FSA.

What we did was divide how much we would spend by 24 and that's how much we had deducted from each paycheck since we get paid twice a month. We faxed our receipt and the claim form every 3 months to get reimbursed.

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answers from Dallas on

Hi K.,
I asked our tax guy the same question! It's the same as claiming it on your taxes at the end of the year. Of course, it may be different if you're in a different tax bracket, or based on other exepmtions you can claim.
However, from what I understand, the only difference is claiming it on the "front" end (as you're spending it), vs, claiming it on the "back" end (after it's already spent). Since it was the same money, we opted to just make the claim when we filed our income taxes because it was less hassle that way.



answers from Dallas on

I guess it depends how much you spend on childcare. I max out our flexible spending account (which is $5000, I think) and that is money that is not taxed. On my federal income tax returns, I can also claim the child care credit on the rest of the money that wasn't tax-free--since I pay around $15,000 in child care each year. So, the flexible spending account does save us some money--I really can't tell you how much. I love it because I don't claim it until the end of the year--so it is money I am forced to save--and saving money doesn't seem to be one of my talents.



answers from Dallas on

I disagree that it's the same as filing at the end, but I think it depends on what your income is. I spend about $9k a year on child care. The first $5k is done through FSA, the second $4k is claimed through taxes. Last year, we got a whopping $300 tax break on about $4k in child care. You only get a small percentage of what you actually spend and that percentage drops the more you make. So, it's a total crock. Doing it through the FSA is much better (IMO). You decrease your taxable income which helps in a couple of different ways when it comes to taxes and of course one of those being you pay less tax.

FSA is very easy. You fill out the form, make sure you have the provider sign it, fax it, and you either get a check or the money is direct deposited right back into your account.

BTW, I also do FSA for all planned medical expenses (well child, well woman, physicals, birth control, eye dr appt, dental work, etc). Being a dual income family, we need all the tax breaks we can get.



answers from Dallas on

Hi K., I had a hard time with the flexible spending account, in that I felt like I was paying twice out of each check. We had money taken out of my check every two weeks for the flexible account, but at the same time I had to pay daycare each week. So I think it was like $150.00 taken out of my check, but yet I had to pay $178.00 a week for child care. So it was hard getting started. I can't really tell how much it helped our taxes b/c we had a lot of other big deductions that year b/c we sold a house, bought a house and had a lot of church deductions. But, I have never gone back it since that first year. May God bless you and your family in getting into a house next year! D.

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