@jarealio take a look at examples 1 and 2 under p. 13 "Reduced Dollar Limit" of publication 503. I think I made the same mistake. I max out my FSA for dependent care ($5,000) and the IRS considers that to use up all of the $3,000 in possible tax credit that we would get for one child. I have about $10k in expenses for 2022 so I thought that I could use the other $5k not funded through an FSA for this credit, but it seems like I cannot.
I wonder whether it would make financial sense for some families who could earn the maximum under the tax credit, who have a tax liability over $3,000, to forego an FSA. $3,000 credit is definitely better than roughly $1500 in tax savings done through FSA, but I guess the difficult question is predicting whether you will have a tax liability greater than your FSA.
