Correct. Care is qualified for the credit if your spouse is looking for work, but the actually dollar amount allowed for the credit or FSA will be limited to the taxable income of the lower-earning spouse. In case of self-employment, this means 92% of his net profit on schedule C. If he doesn't have income, the FSA money that was excluded from your wages will be added back as taxable income, but there are no additional penalties.
Because the FSA saves more in taxes than the credit pays you, the FSA is a better choice even if you are not certain he will have income.
