HEALTH CARE FLEXIBLE SAVINGS ACCOUNT EITC?

Thursday, March 3, 2011

I am single parent with no help from Medicaid or any state aid and I make $28k and I pay $4500 annualy employer healthcare insurance for my family (two children). Will the Healthcare FSA reduce my income for EITC. I need to know if the HSA offered at work will benefit my family since I actually pay no income taxes at this point with 2 dependents. But would it reduce my earned income as does my health insurance premiums? My social security wages was 22k last year when I grossed 28k. I pay for dental out of pocket and my son needs braces badly so I was wondering if this would even benefit me one way or the other. If it could lower my income for taxes then Id get more EITC to pay for the braces is what I was thinking. So so long and complicated. Thanks much.
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You are correct that EIC is driven by the amount in box 1 of your W-2. If you put money into an FSA, it's considered pretax so it's excluded from the income in box 1. Whether this increases or decreases your EIC benefit depends on where on the EIC curve you are. If your income was $28K again with $4500 withheld for medical, then yes, a little bit more withheld under an FSA would increase the applicable EIC. However, it could also reduce any additional child tax credit.
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