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Child-care tax breaks
Dear Tax Talk:
If I participate in a flexible spending account at work and have
pretax deductions taken out for child-care expenses, can I still
write off child-care expenses on my tax return?
Daphne
Dear Daphne:
The short answer is, "It depends."
Basically, you cannot claim on your tax return any
child care expenses you pay for with money from your company spending
account. Since that money is not taxed, it cannot be used to claim
a tax break. The Internal Revenue Service considers this double
dipping.
But if you spend more than your spending account amount
to pay for your child's care, that overage can be claimed as a dependent
care credit, since it is paid by you from your regular taxable
income. You would claim this "excess" amount on IRS Form
2441.
A flexible
spending account is an arrangement with your employer to reduce
your salary by a set amount to be used to pay for tax-preferred
expenditures such as medical and child-care expenses. No taxes are
paid on the set-aside amount. If you participated in a flexible
spending account with your employer, the amounts that you received
should be reported in box 10 of your Form W-2.
Since you did not pay taxes on these amounts, you
must reduce the amount of child-care expenses paid by the tax-free
allowance. For example if you paid $4,000 in child-care expenses
for your two children and received $2,000 reimbursed from your flexible
spending account you can claim a credit on the remaining $2,000
spent for child care.
If you received flexible spending account amounts,
you'll need to complete part 3 of Form 2441 to determine if you
have any remaining amounts to claim on page 1 of the credit claim
form.
-- Posted: May 8, 2003
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