How come I didn't know you can use FSA to pay for preschool tuition???

[kayte]

Am I the only one unaware of this rule???? I knew you could do full time daycare but was unaware you could do private preschool. Where have I been??? That's a nice chunk of change to save for us over $1000 a year-- and DD only goes 8 hours a week--I imagine for others who go full time it would be HUGE.

[egoldber]

I assume you mean a Dependent Care Account? The wording is that "Expenses must be necessary to enable you to work." So if you work and need the preschool as child care it *may* be eligible. I believe there are some restrictions.

[AnnieW625]

However if you do that then I don't think you can write off the deduction on your taxes. I figured out that I get more back from deducting it on my taxes, and I think their might be a limit of how much you can put into it too.

[daniele_ut]

I assume you mean a Dependent Care Account? The wording is that "Expenses must be necessary to enable you to work." So if you work and need the preschool as child care it *may* be eligible. I believe there are some restrictions.

:yeahthat:
You can only use an FSA Dependent Care account to pay for expenses related to child care that enable BOTH parents to work. We elect the full amount ($5000) and we don't save $1000 a year by doing so. It merely takes the amount you have elected out of your check PRE-tax, reducing your taxable income. I'm changing jobs this week and won't be eligible for FSA right away so I need to look into whether will be more financially beneficial for us to deduct it on our taxes for next year or use FSA.

[egoldber]

However if you do that then I don't think you can write off the deduction on your taxes.

Right, because the dependent care FSA uses pre-tax dollars. The annual limit on a dependent care FSA is $5000, so any expenses above that can be deducted.

[AnnieW625]

Alright I wasn't too far off then as my daycare costs $10,000 plus per year (including preschool for 9 mos. a year) so yeah that's part of the reason I don't have an FSA; way over the limit.

[mommylamb]

However if you do that then I don't think you can write off the deduction on your taxes. I figured out that I get more back from deducting it on my taxes, and I think their might be a limit of how much you can put into it too.

I didn't do the math myself, but my accountant did and he said I save a lot more by using the dependent car account than just the deduction. There is a $5K max annually... too bad. I spend about $12K a year on daycare.

[wendibird22]

The tax savings depends on your income, spouses income, what you claim, if you file jointly/separately, etc. For some the child care tax credit is better than the DCAA savings. For me, I save $1600 by using DCAA. I'd save only $600 using the child care tax credit. This is for one child. I also only pay in $4400 to the $5000 max because my employer contributes $600. Next year when I'm enrolling 2 children I'll have to see which way works to my advantage.

There's a calculator here that tells you which is better: https://www.myfbmc.com/customer/taxanalysis.asp

[jhrabosk]

Right, because the dependent care FSA uses pre-tax dollars. The annual limit on a dependent care FSA is $5000, so any expenses above that can be deducted.

Unless I'm misunderstaning you, I don't believe that's true. You can choose either the pre-tax $5000 FSA OR the credit on your taxes. My accountant always fills out the schedule for the childcare credit (my expenses are far greater than $5K) and I come away with zero additional deduction.

[niccig]

Make sure you are working. A friend didn't read the information correctly and used the FSA for preschool for a couple of years. Then they got audited by the IRS - not fun at all. I also *think* and please check this as I could be wrong, that you have to earn more than you have put into the FSA. Eg. if you elect to put $2000 in, you have to earn over $2000.

[AnnieW625]

Thanks for the link, very helpful, it said I would save more using the FSA ($1600 vs. $600, and $1000 for two kids) but unfortunately for at least this year and most of next year we will need most of the cash from our paycheck because DH has been furloughed three days a month until at least June 30, 2010 and if I get pregnant anytime between now and the spring of next year I'll be on maternity leave for part of next year so I'd be getting reduced or no salary. It will definitely be something to look at once we have two kids.

[egoldber]

Unless I'm misunderstaning you, I don't believe that's true.

Good to know. I thought that expenses above the $5K were deductible if you itemize?

[stillplayswithbarbies]

You get the money back, so it isn't shorting your pay at all. In fact, your paycheck will be higher each pay period because this money is taken out before taxes and then given back to you, so your paycheck will be higher by the amount of taxes on the FSA amount.

For example, I do the full $5000 a year since we pay more than that. Each pay period, $208.33 is taken out of my paycheck and I receive a separate check (direct deposit) for $208.33. The money goes out and right back in.

Some plans are set up so that you have to send in receipts to get the money back, but you can send them in as soon as you pay the tuition and then get it back each pay period.

Has something changed on the rules recently? I know that you used to not be able to use it for school tuition, but you could use it on the part that is before or after school care. It's listed separately on my bill, so I claim just the daycare part of it, and in the summer it is all daycare of course.

[wendibird22]

You get the money back, so it isn't shorting your pay at all. In fact, your paycheck will be higher each pay period because this money is taken out before taxes and then given back to you, so your paycheck will be higher by the amount of taxes on the FSA amount.

For example, I do the full $5000 a year since we pay more than that. Each pay period, $208.33 is taken out of my paycheck and I receive a separate check (direct deposit) for $208.33. The money goes out and right back in.

Some plans are set up so that you have to send in receipts to get the money back, but you can send them in as soon as you pay the tuition and then get it back each pay period.

Has something changed on the rules recently? I know that you used to not be able to use it for school tuition, but you could use it on the part that is before or after school care. It's listed separately on my bill, so I claim just the daycare part of it, and in the summer it is all daycare of course.

I live in a state/work for an employer that requires the submission of receipts. The refund is then direct deposited into my bank account. So, there's a little delay between the money being deducted from my paycheck and getting the money back in my account (plus at the beginning of the plan year I have to wait a few pays until enough is built up in the account to cover a week of daycare).

Here's an answer on the tax credit if you use the DCAA:


Q Can I take the Federal Tax Credit and have a Dependent Care FSA, too?
A You cannot use the Federal Tax Credit and the Dependent Care FSA for the same expenses. However, if you underestimate your Dependent Care FSA contribution, the tax credit can be used for any remaining expenses up to the maximum allowed by the tax credit provisions. The amount reimbursed through your Dependent Care FSA reduces dollar-for-dollar the amount that can be used to calculate the Federal Tax Credit. You may use the online tax calculator to find out how to maximize your savings. Because everyone’s tax situation is different, please make sure you discuss in detail with your tax professional.

So I read this as if you don't take the full $5000 DCAA and then actually spend at least $5000, you can claim the tax credit for the difference.

As to whether preschool qualifies:

Tuition for Kindergarten or higher is not eligible for reimbursement. However, if tuition paid for Kindergarten or higher
includes eligible expenses for before and after-school care, you may be reimbursed for that portion of the tuition providing
the before and after-school care.