Are You Making the Right Election?
While many parents are still shoring up their 2020 tax filing, they are probably passing up major savings in 2021 that will need a decision now before it’s too late.
Not only did the pre-tax maximum Dependent Care Flex amount increase from $5,000 to $10,500 for 2021 (if employers choose to participate), but as of this March’s tax reform, there’s an adjusted Dependent Care Credit that might outweigh flexing this year.
By potentially forgoing the pre-tax flex option, families could qualify for up to an $8,000 refundable credit on their tax return. But you cannot do both. There are a variety of factors that go into the calculation, which will be unique to each taxpayer, including income level and number of children. It will be important to analyze the best option for your situation.
So which way to go? The Flex or the Credit?
Step 1. Check with your Employer to see if they allow changes to their Flex plan.
Step 2. Call your favorite Tax advisor, (That’s us!) and let us run your scenarios and calculations.
This is only effective for the 2021 tax year, so don’t delay the calculations or waste valuable time to make changes.