Conference moira::parenting_v3

    Dave, there is a cap on child care deductions for Federal.  I don't
    recall off hand what the amount is.  And you have to give them your
    provider's SSN and file that separate child care form.  You can still
    get the forms at the local IRS office - there are usually offices in
    every large city.  Or look at your instruction book from this year -
    there is a listing of local numbers to call.  And out here (CA) the
    libraries all have that stuff on file to xerox.  Because you give the
    IRS the provider's SSN, you do not have to file a 1099 on him/her,
    however.  Can't help you with Mass. taxes, tho.
    Cathy
    

    If I recall correctly - and this is strictly from memory - The amounts
    are as follows:
    
    	1 child - max of $2,400
    	2 or more children - max of $4,800
    
    These are not the amounts you deduct - they are the amounts you use
    in the calculation to get your actual tax credit.  Based on your income 
    you determine what percentage of the above dollar amounts are deducted
    from the total tax you owe the feds.  
    
    Example - Say you fall into the 27% bracket and can use the maximum
    paid to providers of $4,800
    
    	4,800 X 27% = 	$1,296
    
    You would be able to deduct $1,296 from the total tax you owe the 
    government.  This is actually a tax credit as opposed to a tax
    deduction.
    
    
    
                                                                          

    To my knowledge, the maximum percentage you use is 20%, not 27%. The
    percentage is based on the income you make for the year.  And it
    doesn't amount to much of a tax credit.
    
    

    Re: maximum percentage
    
    No...20% is the *minimum* percentage allowed, and applies to people
    whose income is in the highest bracket on the scale. In other words,
    the less income you have, the higher percentage of the $2400/$4800 you
    can take...the more you make, the smaller the percentage. 
    
    Doesn't seem to be much of a break when you pay over $7K/year for
    daycare and can only take a maximum credit of $480. (Based on estimated
    MA daycare costs for one child in a family whose income qualifies for
    the minimum 20%). But it's better than nothing! 
    
    BTW...last year was our first full year of daycare. What a rude
    awakening when we calculated the annual expense at over $7K!!! That's
    more than some public colleges!!! I guess we never mentally extrapolated 
    our weekly or monthly cost as we wrote out the checks. Oh well...we're 
    happy where we have Nick enrolled, and feel that we get more than our
    money's worth, so I guess that takes the sting out. 
    

    Sorry...I ended the previous reply before I could add the following...
    
    The tax form for child care credit (Form 2441?) was included in the IRS
    tax booklet that was mailed to our house. At this point in the year,
    you probably wont find it at some of the usual sources (banks, post
    offices) but should be able to make a copy of the form from the master
    book of 1990 forms found at most local libraries.
    
    As far as Mass taxes are concerned...I don't remember how much, if any,
    of the credit I could take, but in general terms, they based it on the
    federal credit somehow, even to the extent of asking you to submit a 
    copy of the federal Form 2441 along with your MA return. Therefore,
    remember to get/make a couple of extra copies when you find them.
    
    Good luck!

    I took a peek at our return Child Care Expense Worksheet last night.
    The maximum percentage is 30% (adjusted gross income under $10,000)
    down to a minimum of 20% if your adjusted income is over $28,000.
    
    Since we have two children which require daycare, we could take the
    maximum allowable expense of $4,800 which multiplied by 20% is $960.00
    
    Anytime the feds tell me we can knock almost a grand off what
    we owe them for taxes I think it's a pretty good tax credit.  
    
    Just my opinion - Tricia
    

    When you pay well over $15K per year in child care expenses, $960 tax
    credit is a joke.  
    
    The federal government is way behind the times in this area.  Allowing
    only 4800 for child care?  It's based on a lot of assumptions about the
    American family, and the state of economics in this country that are
    far from true.
    

    
    I use the Dependent Childcare Reimbursement Program and found that it
    saved me more money in taxes than taking the $480 tax credit I would
    have gotten using FORM 2441.  Even though I pay more than the maximum
    $96/week to my sitter, not having that $96 taxed by the state and Fed
    government every week saved me almost double what I would have gotten
    as a tax credit.  
    
    There is some formula to look out to see whether you would be better
    off with the tax credit or with the dependent childcare program.  I
    think it came with the benefits book, the first year this program came
    out (1989?)  If I can find it, I will post it.
    
    Sue

    Sue---.8 
    
    I don't believe there is an actual formula, except for doing what I
    outline below.  But Personnel does provide a guideline which states
    that for *most* employees earning more than $24K, the Dependent Care
    Account produces better, overall tax savings.  
    
    I also have used the dependent care account and when I did my taxes
    this year, also found that I saved considerably more than if I had used 
    the Federal tax credit.  
    
    Since most if us have recently done our 1990 taxes, I encourage you to 
    take the time to play around with the figures.  Calculate your new tax
    due to Uncle Sam by lowering your adjusted gross income by $5K,  and
    compare this to what your taxes are minus the Federal tax credit.  Do
    the same for your state taxes.  Then factor in your FICA savings-- you 
    don't pay the 7% FICA (Social Security) tax on the $5K.  Then add this 
    amount to the Federal and state tax savings.
    
    I have assumed you would claim the max of $96 per week, but you can
    adjust if your daycare bills are lower.  Of course, if you don't use
    the funds, you lose the funds!  And you must be able to afford to pay 
    almost double daycare bills until you are reimbursed once a month but 
    there is a clear financial benefit for most of us.  
    
    
    	Sandy

    My wife and I withheld $3000 in our dependent care account but our
    child-care costs last year were $5100; leaving $2100 directly out of
    our pockets. However the $3000 was > the $2400 Federal allowance on Form
    2441 line 5; thus Part II came out 0.

    The Mass Form ABC worksheet on page 5 references Fed Form 2441, but it
    doesn't refer to the dependent care account. Thus (according to ONE
    person at the Dept. of Revenue in Boston), we are allowed to use this
    $2100 deduction (which is < $2400 limit on line E), for the ABC form
    line 12 (instead of $600 on line 13).

    Hopefully this is correct.  Erica Fox (DTN 223-9567) referred me to
    Jack Engler (sp?) (DTN 223-9196) who couldn't advise me - probably for
    legal reasons.

    One quick note.  When working out our taxes with our tax consultant
    this year, we were asked "why are you using the dependant care account"
    through work?"  We were obviously defensive since we were given the
    presentation and believed it would be to our benefit (tax-wise) to do
    so.  Lots of paperwork, but it was worth it since it was pretax dollars
    (we thought).
    
    Thinking we were in the "28% tax bracket" it made sense.  BUT, when
    you take your actual tax paid with your taxable income, we found that
    we were much below this bracket.  
    
    I am not a tax person (thus we have accountants that do this), and
    cannot tell you whether we fit any special parameters that makes this
    happen, but we would have gotten $30 BACK on taxes this last year if we
    had NOT filled out the piles of forms throughout the year to get
    reimbursement.  AARGH!  I would gladly pay $30 to not to have to fill
    out the forms.
    
    Needless to say, I have since cancelled my dependant care account . . .
    Again, everyones taxes are different, but you may want to check it out.
    
    

Yes, as far as your income is concerned, you may be in the 28% tax bracket.
However, take all your deductions, credits, etc. and get your actual tax owed.
Take your actual tax owed, divide it by your total income, (W2 + interest +
dividends,etc) and multiply the result by 100.  This is your actual or
effective tax rate.  The deduction for mortgage interest and other related
taxes will often make your effective tax rate 8 - 10% lower than if you simply
look at your income alone.

Bob

The relevant question, though, is not your average tax rate, but your 
marginal tax rate.  If, after taking all your other deductions, you're
still in a 28% tax bracket, then eliminating a dollar of taxable income 
will save you 28 cents on your taxes, even though your "average tax rate"
may turn out to be only 10%.

Our accountant (an ex-IRS auditor) said that since our dependent care disburse-
ments exceeded the maximum allowable amount, we could NOT claim the difference
we paid over and above the dependent care coverage.

Not sure what to say to you ... we played it safe and did not claim the
difference.

The dependent care benefit definately provided us with a greater savings than
the IRS allowance would have (but it all depends on your income, tuition
expenses, tax bracket, etc.). 

Dottie

	To GLDOA::LAETZ (re. .11)

	If you are really in the 28% tax bracket, then DCRA should most probably
	have been better for you. As .13 points out, it's your marginal tax
	rate that counts, not your average rate. Thus, if you put away the 
	max (4992) last year, you have already gained the maximum benefit 
	(.28 * 4992) out of it. If not, you can take at most 4800 benefit.

	I can not imagine any other way where not having DCRA might have gotten
	more money back to you, if you really are in the 28% bracket. I'm not
	a tax expert either, but you may consider going to another accountant
	next time.