Thanks for the detailed write up.
I contacted my company's payroll/HR department and they are saying they are correct to show the $10,500 amount because that is how much was paid out in claims via the Dependent Care Account. They sent me documentation/example from the IRS that shows if an employee receives more credit than what is allowed by plan, you still put the amount of benefit paid and add back the taxable amount to box 1,3,5 in the W2. This is exactly what the company did for my W2.
Changing the W2 box 10 myself doesn't seem like a good idea and manually finally a paper return also doesn't sound like a great alternative.
The difference is significant, it is 20% of the taxed amount $3,562.04, a $712 reduction in my federal tax refund. I believe this is a shortcoming of the TurboTax software that does not allow for this tax situation. I tried to call the TurboTax help line but was hung up on when I explained the situation after waiting on hold. Would TurboTax make a change like this during the tax season? I'm contemplating on trying a different service to file my tax returns that does not have this situation.
Thanks for all your help and insight @BillM223
