Deductions & credits

The money you put into your FSA is pre-tax. If you put $5000 into your FSA and only have one child, you cannot take the Dependent Care Credit based on the Credit being limited to $3000 of expenses.

You are actually getting a better tax benefit by using the FSA than you would get by using the Dependent Care Credit.

For example, with one child, if you did not have an FSA and paid care expenses with taxed money, your credit would be limited to $3000 of expenses, even if you paid $5000 over the course of the year. The maximum tax credit for the lowest wage earners is 35%. So their tax credit would be worth $1050.

You likely have income greater than what falls into the 35% range for the credit so if you have income over $43,000, your maximum Dependent Care Credit would be only $600.

You are saving more by having an FSA and having $5000 of your income untaxed.