Not exactly. The child and dependent care account is funded with pre-tax dollars. The government will not get money back the following year because the funds are excluded from your income. But, yes, the balance in the account would be reduced because of the reimbursement.
Your workplace will report what was contributed, not distributed, as pre-tax dollars for your child and dependent care needs on a calendar year basis, even if the plan year is based on a fiscal year, not a calendar year.
Technically, the $1,200-$420, or $780 could be used toward the Child and Dependent Care Credit for 2020 because it was paid with after tax dollars.
It would be better to only include Child and Dependent Care amounts that exceeded the pre-tax dollars invested at your workplace to avoid any scrutiny from claiming this credit.
The IRS will allow pre-tax dollars or a credit, but the same dollars cannot be used for both.
For more information, see: The Ins and Outs of the Child and Dependent Care Tax Credit - TurboTax Tax Tips & Videos
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