Number of Children in Child Care
2 - # of Children (Pick the Right Deduction)
A Dependent Care Flexible Spending Account allows you to contribute $5,000 annually. The amount is fixed, and does not vary with the number of children with qualifying expenses.
The Federal Child Care Tax Credit limits vary based upon the number of children with qualifying expenses. You can not claim credits in both programs for the same expenses.
1 Child with Day Care Expenses
If you are paying child care expenses for one child, the FSA has a clear advantage. Would your rather save taxes on $5,000 or $3,000 of income? The choice seems clear.
2 or More Children with Child Care Expenses
If you have expense for two or more children the math gets a litter trickier. You may apply the first $5,000 to the FSA, and the remaining $1,000 to the Child Care Tax Credit. This makes sense when the total tax savings percentages are higher for the FSA.
Every tax scenario is different. Consider your tax bracket, your Adjusted Gross Income (AGI), and other FSA tax savings to make this determination.