I have a two week old newborn. In reviewing my employer's benefits within the 30 day life event window, I have noticed we have a Dependent Care FSA, which seems an exciting benefit that I was not planning on. Since we won't start daycare until about October, it's now a question for me to decide whether to start this FSA; and if so for how much, the maximum $5000 or a lesser amount. (I have a separate question to my HR department whether there is a grace period for spending at the end of the plan year. This question is about the IRS rules between the FSA and the childcare tax credit.)
This is a related question but doesn't have my details.
Check my assumptions:
After reading IRS Publication 503 am I correct that because:
My spouse and I each work full time
My spouse and I file married file jointly
we can ask the benefit administrator to deduct $5000 per year into the FSA, including with a midyear start; but because
- We have 1 child
We are eligible for $3000 annual childcare tax credit?
Does FSA deduction greater than the child care credit cause the deducted amount to feed back into earned income (or in other words, should I not bother to take the FSA deduction for more than $3000)?
I did not find my scenario the IRS publication 503 examples (example 2 on page 12 is closest, but involves 2 children). Reading the worksheet on page 14, it appears that I would have $3000 on line 4; $5000 on line 5 and a calculated negative 2000 on line 6; this would flow to line 9, and negative values become 0 in line 10, suggesting I could take the full $5000 FSA pretax deduction. Is there another form where this would come back and bite me?