Hello,
As a first time parent, I'm unable to decide whether putting money in FSA will work better than claiming Child Care Credit on our IT returns. I'm from Oregon which has a pretty high state income tax rate and I am thinking FSA would be more beneficial. Our combined income is ~$144K.
Any help in deciding will be greatly appreciated. Sorry for the newbie question.
Thanks.
The maximum Federal credit is 20% of allowable expenses. Check Oregon instructions to see if there's any benefit at the state level.
The comparison is the amount the FSA would reduce your taxes. Multiply the amount by your marginal rate, a/k/a "tax bracket," and that should give you the numbers. Don't forget that the FSA is also exempt from FICA/Medicare taxes.
If you don't want to do all the math, use tax software to play the different scenarios. You'll still have to manually calculate the payroll tax savings.
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