Sorry, I was not clear.
The amount in box 10 on your W-2 was removed from Wages in box 1. This is how it is a tax benefit. But whatever you don't spend on child care has to get added back to your income (Wages) to make up for it being removed when the W-2 was printed.
So when I said it would be added back to income, I meant added back to taxable income, not your wallet. Sorry that this was not clear.
But you agreed to this tax benefit (the FSA) on the condition that you would spend it only on child care. So, in essence, you were never going to get this money anyway (except to give to the day care).
But since you did spend your own money (I assume) on child care, you are able to apply it for the calculation for the Child and Dependent Care credit.
Depending on your adjusted gross income (AGI), you can get a credit of 20% to 35% of up to $3,000 that you spent on one child or up to $6,000 for two or more children.
Thus, with two children, if you spent at least $6,000, in the worst case you receive a $1,200 tax credit. This is what I meant by helping to pay the tax on the $5k added back to taxable income.
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