Is it true that this only allows us to claim the remaining $1000 under the Child and Dependent Care Credit?
Yes it is ... you only get the CREDIT on the amount over the $5000 you put in the FSA because you already got the tax benefit on that $5K when you made the FSA contribution. You saved Federal + State + local taxes as well as the FICA taxes.
So, for instance, if you are in the 20% federal & 5% state tax brackets you saved :
$5K x (25% + 7.65% FICA) = $1633 instead of the $1000 on the credit form ... so you are ahead of the game which is why the FSA is so popular.
