With an AGI under $125,000, the credit is a much better deal and then the FSA, because the credit is 50% and the FSA will save about 35%, in combined federal, state, Social Security, and Medicare tax. However, at higher incomes, the credit percentage is sharply reduced, while the tax savings stays the same. At an AGI of more than $200,000, the credit is capped at 20%, while an FSA will result in savings of 35% or more, depending on the state income tax rate.
There is no income limitation to contributing to a dependent care FSA. The only limitation I know of happens if you are an owner of the company with more than a 2% ownership share.
