Tax credit or cash in hand

July 31, 2009

I’ve realized that one of the only things that has been helping us get by is our reimbursement checks from childcare.  These checks also give us a false sense of security once they arrive since it’s a big influx of cash into our account.  So, now I’m wondering if we should forgo the tax credit we are getting by having this money taken out of our paycheck and instead simply filter this money back into our monthly budget.

Right now, my husband and I get about $530 for child care and about $70 for healthcare taken out of our paychecks each month.  We usually save up our receipts and send them off about every 3-4 months and get a big payout.  I’m wondering if, given our current financial status, it makes more sense for us to keep that $600 in our paycheck and use it for monthly expenses.  Right now it just seems we are not disciplined enough to use that big payout wisely.

Any advice from the blogosphere is extremely welcome!

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4 Responses to “Tax credit or cash in hand”

  1. JJS said

    I wish I could help you out with advice but financial advice from me would be like marital advice from a thrice divorcee. Sorry. I hope someone answers to you.

  2. Kay said

    Rachel,
    If you are going to continue to pay the child care costs, you need to keep the money in the employer-provided workplace flexible savings account. This is money you’re going to spend anyway; why not get a bit of a tax break while you’re at it. This way, the money in the spending account also helps reduce a bit your payroll taxes. As for the medical component, that might be worth bringing back in-pocket since it apparently isn’t that much and if you don’t think you’ll get good use of it. Remember, you have to use your medical FSA money or you lose it. It’s definitely a challenge to balance the advantages of a tax break with pure money in hand. This calculator might help you do that http://www.shps.net/myshps/fsa/calculator.stm

    Hope this infor from one Texas Techsan to another helps!
    Kay

    Don’t Mess With Taxes

    http://dontmesswithtaxes.typepad.com/dont_mess_with_taxes/

  3. Yellow Piggy said

    If the money for childcare and health is take out before taxes, then you should probably leave it that way. Turn your focus on becoming more diciplined by making sure you give every dollar of the big pay out a name/home on paper prior to actually spending it. This small action may save money and time that you would have spent worrying about how you “should have” spent the money.

    If you change the way this is set up, childcare and healthcare will actually cost you more in the long run.

    These links may be of interest:

    Childcare: http://www.daveramsey.com/etc/askdave/index.cfm?event=dspAskDave&intContentItemId=7947

    Health:

    http://www.daveramsey.com/etc/askdave/index.cfm?event=dspAskDave&intContentItemId=8484

    • rachelabc28 said

      Thanks for everyone’s help. We’re going to see how we manage these last two payouts. If we can budget them correctly, we might leave it as it is since it is a pretty substantial tax break.

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