Box 10 of your W2 records FSA contributions for childcare expenses. There is a $5,000 limit for this purpose.
The money in this box is withheld pre-tax, so you are receiving a tax benefit by having it withheld pre-tax.
You can't withhold money pre-tax and also use that same money to take the Dependent Care Credit; that would be getting a double tax break.
However, the Dependent Care Credit is limited to $3,000 of expenses for one child and $6,000 of expenses for 2 or more children.
If you have only 1 child and had the maximum $5,000 in your FSA, you cannot take the Dependent Care Credit. The FSA is the best option because you are actually getting $5,000 pre-tax instead of only getting the credit on $3,000 otherwise.
If you have two or more children, you would still have $1,000 to apply to the credit that hasn't received any tax benefit yet.
This is why you are seeing your childcare expense deduction being reduced.
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