In tax year 2020 I had Dependent Care FSA of $5000 excluded from my wages. That year I also claimed the max out of pocket daycare expenses with the Child and Dependent Care Credit for our 2 children of $6000 (we spend about $25K on daycare each year). On form 2441 I only received a credit of $200 since my $5K in FSA dollars are excluded from the $6K max allowance and our AGI is about $115K. So 6000-5000=1000. 1000*.2 = $200 credit.
However in tax year 2021 changes were made and allow up to $18,000 (for 2 children) in care expenses under the Child and dependent Care credit, as well getting a max credit of 50%, and that 50% won't phase out until $125,000. And the credit is fully refundable. Also, they increased the dependent care FSA contribution limit to $10,500 in 2021.
So this is my question....Should stop contributing to the PRE-tax dependent care FSA in 2021. Since that money will be excluded from the $18000 available under the Child and dependent Care credit?
Are these scenarios accurate assuming an AGI under $125K in 2021. I am considering going with scenario 2. Am I getting this correct?
Scenario 1
FSA dependent care dollars $10,500
Child and dependent Care $18,000
Total credit would be $3750:
18,000-10,500=7500, 7500*.5 =$3750
Scenario 2
FSA dependent care dollars $0
Child and dependent Care $18000
Total credit would be $8000
18000-0=18000, 18000*.5 =$8000
