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Dependent Care/Tax credit question
If you have a neighbor who is not licensed watch your baby, can you pay her with dependent care money? How does that work? Also do you get the tax credit at the end of the year?
I was thinking that if a daycare charges say $1200 a month, but I can use dependent care $ to pay that and get a tax credit at the end of the year, it would probably be cheaper in the long run to do that then to pay a neighbor $1000 a month and not get any financial assistance, right? Am I thinking about this the right way?
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Re: Dependent Care/Tax credit question
The tax credit at the end of the year all depends on your income and what you paid vs. what was put in DCA.
You actually can pay an unlicensed neighbor with the DCA, but she will have to give you her SSN and thus presumably pay taxes on the money (which at $1000 a month she definitely should) and if she is not willing to do that, then no you can't use it unless you want to?essentially?report her to the IRS by giving her name and indicating you tried your hardest to get her SSN but she would not give it.
I think that $250/wk is really high for someone to keep a child in home (even in Raleigh). That is over twice what we pay for an in-home care. ?The state site can help give you an average so that if you do decide to go that route, you pay her an amount fair for you and her.
And mathematically speaking, no it would not be cheaper in the long run to do the center. ? You can only put around $5000 into a dependent care spending (as of last year), so at the 33% tax bracket that only represents $1650 in savings. ?The difference in your two examples is $2400, so you would make out by $750 going to the neighbor who doesn't pay taxes. ?Those savings are less and less as your tax bracket goes down.
?
EDIT: ?mikey's right - my calculation is oversimplified because it ignores the possible credit you can also take, but you get the gist?
No, you can't use your DSA money for someone who doesn't report their income to the state.
Doing the math is pretty much going to be impossible. But, even though you can only save $5000 a year with your FSA, anything you spend OVER that amount can be filed on your taxes at the end of the year. So you'll get more of a break than just the taxes on the $5000.
I agree with Evans though, that sounds like alot for in-home care. Especially if she's not going to claim it on her taxes. Most people that keep kids "under the table" are pretty cheap.
That sounds a little better. Childcare is less expensive here. A 4 or 5 star center charges around $160/week, and you can easily find in home care for around $100/week. If she's not going to let you claim it on your taxes, then I would take that into consideration for your rate.
A friend of mine sent her son to an in home place, and they agreed on $100/week under the table, $125 if she wanted to claim it.