My employer has FSA dependent care account and I decided to make use of it in 2006 and 2007 for child care expenses. Afterwards, I decided to do the math (see below) and it seems that I loose money from this election although the FSA provider's info tells me that there's no way to loose if you use their FSA. Based on my calculations, I would benefit from the FSA only if my effective tax rate is higher than
40%. Could you maybe tell me what's wrong with my math? 2006 2007 Facts Eligible childcare expenses 3,200 9,800 Selected FSA deduction 1,500 5,000 Maximum FSA deduction 5,000 5,000 Maximum childcare credit 3,000 3,000 AGI child credit threshold % 20% 20%
Assumptions Effective tax rate 25% 25%
Calculation Tax Credit Savings 640=3.2k*20% 1,960 =9.8k*20% FSA Account Savings 375=1.5k*25% 1,250 =5k*25% Diff 265 710 Total diff (loss) 2006 & 2007: 975
>
>
>
>
>
>
>
>
>