Thus, the net federal benefit to the householder who uses the DCA plan equals $1,889, versus only $810 if the household had, instead, used the federal DCTC--$1,079 is saved by shifting from the federal DCTC to a DCA plan.
At the state level, if a household chooses the DCTC, $3,000 in dependent care expenses qualifies for the New York DCTC, so the household's state tax liability is reduced by $864.
For householders with two qualifying children, DCA plans offer federal savings equal to $1,042 ($2,261 - $1,219), more than if the federal DCTC is chosen.
The benefits are calculated as follows: For the current plan, add the federal and state DCTC; for current policy, add the difference in the total tax (refund) between the two.
EXHIBIT 2 Total Federal and State Tax Benefits from Alternative Childcare Tax Policies for Single Householders with AGI of $30,000 Children Qualifying for EIC 1 2 Children Qualifying for Dependent Care Benefits 1 2 Dependent Care Expenses $5,000 $6,000 Childcare Policy Chosen: Federal DCTC $1,674 $2,948 DCA with Current State Policy 2,389 3,161 DCA with Oregon-type Provision 3,253 4,560 DCA with State Income Adjustment 2,958 4,265 It is also worth noting that New York City residents pay a city income tax and may qualify for a city-specific EITC, as well as the proposed refundable childcare credit.
As an alternative policy initiative, families could be allowed to claim the New York DCTC if they choose to include the expenses paid through DCA plans as New York taxable income.
These officials are more equivocal, with respect to the alternative: including DCA expenditures in New York taxable income in order for them to qualify for the state DCTC. In response to an inquiry from the author, one anonymous official wrote:
What makes this rationale most troubling is that currently there is a large group of taxpayers who have chosen DCA plans and are required to add these expenditures back into their New York income, but still do not qualify for the state DCTC. Specifically, New York Tax Code section 612, paragraph 31, requires taxpayers to add back into their state adjusted taxable income: "The amount deducted or deferred from an employee's salary under a flexible benefits program established pursuant to section twenty-three of the general municipal law or section one thousand two hundred ten-a of the public authorities law" (public.leginfo.state.ny.us).