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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13323
Experience:  15years with H & R Block. Divisional leader, Instructor
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Currently, my husband and I have $13,000 per year in daycare

Customer Question

Currently, my husband and I have $13,000 per year in daycare expenses for our 2 children who are 2 and 7. In the past we have qualified for a tax credit on our tax return of $1,200. My employer is now instituting a 125 plan and I'm told that I can take a reduction in pay and have up to $5,000 recharacterized as pre-tax funds.
My question is, if I participate in the plan (for the full $5,000), can I utilize the remaining $8,000 on my tax return which will enable me to receive the same $1,200 tax credit that I was previously receiving?
This has the appearance of more than doubling my tax savings, or am I missing something?
Our income (line 22) for 2014 was $100,097 and our AGI (line 37) was $99,916. Our income is split almost 50/50.
Submitted: 11 months ago.
Category: Tax
Expert:  Robin D. replied 11 months ago.

Hello

For the tax break in using 125 Child Care, you are allowed to consider $3,000 of your expenses for one child or $6,000 for two or more children. There is a flat limit of $5,000 for the Section 125 Plan. If you have two children, and $6,000 of expenses or more, you can elect $5,000 in the Section 125 Plan, and still claim $1,000 on your tax .

You will not receive the same amount for credit because you are not going to be claiming the total for childcare as paid BUT having the $5000 come out before you are taxed on wages will save you on income tax, SS, and Medicare.

You could save more in tax withholding under the 125 than you were getting in Childcare credit.

Expert:  Robin D. replied 11 months ago.

If my answer addressed your question please rate below or above (let me know if you have difficulty as I believe the system changed), if you need more information reply below.

Expert:  Robin D. replied 11 months ago.

Now that you have had time to view, please advise if you need more information or rating in a positive way is acceptable.

Expert:  Robin D. replied 11 months ago.

Susanna, please let me know what other information you require.