The federal tax credit
A portion of your qualified day care expenses can also be applied as a credit when you complete your federal income tax return. However, expenses that have been reimbursed through the DCFSA cannot be applied toward the credit. In addition, all amounts reimbursed through the DCFSA reduce the maximum available tax credit on a dollar-for-dollar basis. Therefore, you should consider both options and decide which one produces the greater tax savings for you.
Eligible expenses under the tax credit are the same as those eligible for reimbursement through the DCFSA. Depending on your family's total gross income, your tax credit could be as much as 35% of your annual day care expenses, subject to certain maximums.
The maximum amount of day care expenses you can use to calculate the tax credit is $3,000 if you have one dependent or $6,000 if you have two or more.
The maximum available tax credit is $1,050 for one dependent or $2,100 for two or more. It's up to you to determine whether the federal dependent and child care tax credit or the DCFSA is more advantageous for you. In order to make this decision, you should consider:
- Your total annual day care expenses
- Your family's adjusted gross income (the amount you pay taxes on after you've claimed exemptions)
- The maximum available tax credit
You can obtain detailed information about the federal tax credit by calling UnitedHealthcare toll free at 800 387 7508 or by visiting the UnitedHealthcare website at www.myuhc.com. Information also is available directly from the Internal Revenue Service online at www.irs.gov or by calling toll free at 800 TAX FORM (800 829 3676) and requesting Publication #503: Child and Day care Expenses.
- If your spouse does not work, you cannot use the DCFSA or the tax credit unless your spouse is looking for work, a full-time student or is disabled and incapable of self-care.
- The amount of work-related day care expenses that can be used to calculate the tax credit or submitted to the DCFSA cannot exceed the lower of your annual income or your spouse's annual earned income. For example, if you earn $30,000 annually, and your spouse earns $3,000, the most you can contribute to the DCFSA or apply toward the tax credit is $3,000—regardless of the actual amount of your expenses or the number of qualified dependents.
- If your spouse is a full-time student or is disabled, you may assume a minimum amount of earned income in order to determine the maximum allowable DCFSA contribution, or the maximum available tax credit. If you claim expenses for one dependent, your spouse's minimum earning assumption is $250 monthly. If you claim expenses for two or more dependents, your spouse is assumed to earn $500 per month.
- In order to use the DCFSA or the tax credit, you must report your day care provider's name, address and taxpayer identification number on your federal income tax return. If an individual instead of a day care center provides care, the taxpayer identification number is the individual's social security number.
- You must file a claim in order to be reimbursed for qualified day care expenses.