Dependent Care Reimbursement Account vs. Income Tax Credit
Federal and North Carolina law provide a dependent care tax credit. Based
on recent changes in federal tax law, most employees will save more money by
participating in the Dependent Care Reimbursement Account than by filing
for the tax credit.
The amount of your day care expense that is eligible for the "tax credit" is reduced
dollar-for-dollar by the amount that is reimbursed under the Dependent Care
Reimbursement Account. This means you can't take the "tax credit" on any expense
that has been paid through the Dependent Care Reimbursement
account. Accordingly, you need to determine whether the reimbursement
account or "tax credits" is more beneficial to you. Before making a
decision, you may want to consult your tax advisor.
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There is information available that can assist you. IRS Publication number 503 may
be downloaded via the IRS web site at www.irs.gov. In addition, IRS Form 2241,
"Child and Dependent Care Expenses", which needs to be completed along with
your IRS Form 1040, provides information on calculating the amount of your federal
credit. Information to calculate the amount of your North Carolina child care credit
is available to you through the State Department of Revenue instruction D-400 with
TC, which may be downloaded at www.dor.state.nc.us.
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