What's better? Flexible spending account or child tax credits?

Question

I just signed up for a flexible spending account for daycare at the $5000 maximum amount. The savings would be about $1200 based on my 28% tax rate. (I think I did that correctly.) Given that there some pretty favorable child tax credits come tax time, which would be better for me? The FSA or the tax credit? My understanding is that if I use the FSA I cannot take any child credits I would normally qualify for.

True? Any ideas? Thanks!!

Answer 1

Not quite true - if you use FSA for child care, you can't also take a child care credit for the same money, and any child care credit would be affected by the amount used under the FSA.  Your regular child credit is not affected.

As far as which is better, do the math - it can go either way depending on your individual situation

Answer 2

You can have your cake and eat it too. You can sign up for your employer's (generous, IMO) flexible spending account, and take the child tax credit and additional child tax credit, if eligible.

Two warnings: These type of accounts are usually use it or lose it.

And you should not try to claim child care credit. Your FSA is better than what you could get for child care credit.

Answer 3

Yes, that's true.

Which is better depends on your marginal tax rate and your AGI.  If you are in the 28% tax bracket, the FSA will be better because your tax credit would only be 20%.

Answer 4

If you do the fsa you cannot take the child care credit. The other credits do not apply.