I forgot to mention the effects of state income taxes. As far as I know, every state will respect the exclusion of the FSA as taxable income, so the FSA should save you 3%-13% state income tax, depending on your income and state. Some states also have a child and dependent care credit, and we would have to know the rules for your state to evaluate the impact. For example, New York has an extremely generous credit for lower income filers. At income levels above $65K, the credit is 60% of the federal credit (or a net of 12% of the expense), and at incomes above $150K, the state credit is 20% of the federal credit (or a net of 4% of the expense), while the state income tax rate is 7-9%. So the NY state credit makes taking the federal credit much more attractive at incomes less than $150,000.
It depends on your own state of course.
