Dependent Care Flexible Spending Account (DCFSA) Continued
For individuals who do not have the option of an employer provided Dependent Care Flexible Spending Account, the IRS Dependent Care Tax Credit serves to fill that void. The dependent care credit provides as much as a $3,000 reduction in federal taxes, but is subject to an income ‘phase-out’. The DCFSA has no income limits and likely more desirable to high income earners compared side-by-side to the tax credit.
Generally speaking, the higher the income the more favorable the flexible spending account becomes, if available. With good planning, setting aside money for dependent care before federal income, social security and medicare taxes are levied can save 20% to 40% on taxes. The dependent care credit, in real tax dollars, favors those taxpayers earning under $50,000 per year.