My company made me aware that the Recovery Plan Act allows you to go from $5,000 for Dependent Care Credit up to $10,500.

We updated my paycheck accordingly. If you have kids in daycare (or another qualifying situation) make sure you withhold more starting now. Easy way to reduce you taxable income by another $5,500.

https://probenefits.com/arpa-temporary-dcap-increase-2021/

Thanks for posting. I'm gonna reach out to my HR and see what they say.

It does sound like they are also increasing the child tax credit as well, so this could be a $20K tax liability deduction for us.

AgEng06 said:

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Ha, of course this would happen when my youngest finally starts school and I will finally pay less than $5k in 2021.

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I know how you feel. It is like they look at my taxes and situation to screw just me when they make changes.

Any income limits on this? Thanks for posting!

My employer is not allowing changes to take advantage of the increase.

Yeah...mine either. Pretty bummed.

kjcAg said:

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Any income limits on this? Thanks for posting!

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Looks like no.
https://www.irs.gov/taxtopics/tc602

Thanks for the heads up. HR let my wife do a one off payroll contribution for the increase and keep the rest the same for the rest of the fiscal year.

You can't modify your W4?

Does this have to be thru an FSA? I didn't realize you could pay for child care from an fsa.

Ragoo said:

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Does this have to be thru an FSA? I didn't realize you could pay for child care from an fsa.

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Not an FSA. It's called Dependent Care Reimbursement Account (or some such)
https://www.irs.gov/credits-deductions/individuals/child-and-dependent-care-information
https://www.irs.gov/publications/p503

Ask your HR if they offer it and if you can sign up midway through the year.
Cliff's Notes: you set aside $5000 per year (just over $208 per semi-monthly paycheck for me) into an 'account' (on Fidelity for me). I pay the daycare out of my own pocket and can 'reimburse' myself at any given time from the Fidelity account by proving to Fidelity I paid X dollars for child care.

Plus, it reduces my annual taxable income from $1,000,000 to $995,000. So there's that.

Is that $5000 total or per child?

No. Per household, and only one household member can claim it. My wife does not participate in the Dependent Care Account.

Something I hadn't seen (and I like to think I pay attention to such things) from that same bill was the change to the Dependent Care Tax Credit. It got WAY super-sized and the way I read it will be a way better deal than the quasi-FSA thing you mention.

You can do the pay/reimb thing you mention. Or if you pay and are NOT reimb'd for it you've always been able to claim 20%-35% of up to $3,000 for 1 child or $6,000 for 2+ children (only 20% for anyone over $30k-$40k annual salary). They went big and that's now 50% (up to $140,000k annual salary) or 35% above that.. up to $8,000/$16,000, respectively. So what was once $1,200 is now $8,000.. AND it's fully refundable; meaning you can exceed your actual owed taxes and "make" money from the government.

Now if you make $430k+ nevermind, the quasi-FSA is all there is. Otherwise, DON'T do the FSA which will just saving you your effective tax rate. The expanded credit, though, will save you 50% and on a much higher amount?

Unless I'm reading it wrong..