#3 is not this issue. You can and should enter all of your expenses in the credit section. But here is what happens. You enter the 5K from your W-2, it shows taxable, but when you enter the expenses, that $5k becomes non-taxable. And then because you have 2 qualifying children, you can take an additional $1k of expenses. The total credit is up to $6k with 2 children. But because you already got $5k tax-free from your W-2, TurboTax is only going to apply $1k more of expenses to your Dependent Care Credit. You should have the $5k tax-free income on your W-2, then you should qualify for the Dependent Care Credit based off an additional $1k of expenses.
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