Dependent care expense plan for daycare

[mrsjrd23]

If your company allows you to put money aside on a pretax basis for child care expenses, do you do this? Is there a reason not to?

We are due Dec 9th and I'm trying to figure out my open enrollment for our benefits. I know I have to wait until baby arrives to add him to my insurance even though the benefits I'm electing won't go into effect until Jan 1, after he's already here but I need the birth certiificate.

SO stupid question #1: I'm assuming I wait until after the birth to start adding money to this account as well?

Also, if you do have a plan you contribute to, how does it work for reimbursement? Do you pay your monthly daycare tuition then send a request for reimbursement or do you have something like a debit card/CC that you just make the monthly payment with?

Stupid question #2: When using my employer's medical cost estimate tool, if I estimate to need 5K for childcare (the max I'm allowed) over 26 pay periods and in my tax brackets, it says I will save $1250 in federal taxes. Does this just imply I will pay that much less or will it show an increase in my refund?

[froggy76]

I do this and I don't see a reason not to unless you wont be able to take the tax deduction for some reason.

#1 - I don't think you can contribute before your baby is born. Your employer will probably have open enrollment soon and you wont be able to sign up for this FSA. However, when your baby is born, you can report a qualifying status change that will allow you to change your election and enroll in the program.

#2 - The money will come out of your paycheck and offset your taxable income. So, if you contribute $100 per paycheck, you will pay taxes on $100 less income. If your tax rate is 25%, that means you'll save $25 in taxes. Therefore, the decrease to your take-home pay is only $75. In the example you gave, you'll contribute $5000 over the course of the year, but you'll save $1250 in taxes, so it really only cost you $3750.

The way my plan works is that I have to submit for reimbursement. So, I've had the money taken out of my paycheck AND I've paid DD's daycare. When I get around to it, I'll submit a receipt to get my money back.

ETA: Now I understand your tax question. I am not 100% positive that I see the tax savings in my paycheck, but I think that's how it works. I will check later.

[froggy76]

I looked at my paycheck and I feel dumb because I can't tell if my federal taxable income was reduced for the FSA deduction. I think it was.

[lishie]

With mine, my federal taxable wages are reduced by the amount deducted each pay period for DCFSA, so I see the tax benefits immediately and don't have to wait for a refund. We do the FSA because we don't qualify for the income tax credit otherwise.

I usually just wait until I accrue 5K in bills, then I send one bill to my FSA and my reimbursements begin. I'll get all that I accrued up to that point at once, then I get a reimbursement every two weeks a few days after I get paid.

[atouchofklasse]

Ditto Lishie.

I also love the idea of waiting until January and getting a lump sum. I may do that for next year/ January 2014.

[mrshandy]

I think most of your questions have been answered.

We get a few reimbursements throughout the year, usually whenever it gets to $1K. We put the money in savings so I would rather have it my account accruing interest than wait until it is up to $5K.

[curbsideprophet]

I think it makes sense for most people to do it.

I can not be reimbursed until the money was actually collected from my paycheck. Since we would get to 5k well before the end of the year I adjusted how much they took out per pay period. Instead of spreading it out over the whole year/26 pps I had them take out more so it was only about 18 pay periods (I don't remember exactly how many pay periods I picked). This way I do not have to wait until January to get all my money. So far I have sent in two reimbursements and have gotten most of my money back. I have one more claim that i have been meaning to send in for the rest.