Does a Flexible Spending Account make sense for childcare costs?

Q: My wife and I foresee spending approximately $12,000 on childcare this year. How much of it will be deductible? Does a Flexible Spending Account make sense? Are there any other tax benefits we could take advantage of? Our combined income will be around $160,000. —Leo, Norfolk

The following answer was provided by Barbara Damon, CPA, Edelstein & Company, LLP.

A: The flexible spending account would make sense for you. It allows you to put aside $5,000 pre tax for child care expenses. Otherwise you get a credit of 20% of the first $3,000 you spend per child or 6000 for 2 or more children. If you have the 5,000 flexible spending benefit, you do not get to take the credit for the child care expenses.

The following answer was provided by - Mark Misselbeck, CPA, Levine Katz Nannis & Solomon PC, Needham.

A: Using an FSA is probably your best bet and is limited to $ 5,000, total. This will usually produce a better result in your tax bracket than the only other benefit, which would be the child care credit on Form 2441. The credit is computed on a maximum of $ 6,000 at a 20% rate for your bracket, or a credit of $ 1,200. The taxes saved on $ 5,000 would be Medicare (at 1.45%, or $ 72.50) and income tax (state and federal) of $ 1,665 (assuming a 28% marginal federal rate and 5.3% for MA - not considering any savings from an itemized deduction for the MA income tax).