There were some excellent posts earlier in this thread about the possible reasons for your W-2 box 10 amount to show as taxable (and how to fix it, if it is incorrect).
When you enter such a W-2, the TurboTax program immediately treats that excluded income as taxable (adding it in on line 1e of your 1040), since you haven’t yet provided the info which confirms you’re entitled to exclude it. You do that in “Child and Dependent Care Credit” section (in “Deductions & Credits,” under “You and Your Family”). Once you enter expenses for qualifying youngster(s) which are equal to or greater than your excluded benefits, the extra income is removed from line 1e.
And then you also may get a credit on Form 2441, depending on how much of your $3000-for-one-kid/$6000-for-two-kids total tax benefit remains after the exclusion. (Excluded benefits reduce the amount of credit which is possible.)
If your benefits aren’t being excluded after you’ve entered the info about the kids, expenses, and providers, it may be because both spouses didn’t have earned income (or maybe they did, but one spouse’s W-2 was accidentally attributed to the other spouse, so the program thinks one didn’t have income). If an additional credit is also expected, sometimes it’s not there because there’s no tax to reduce with such a credit (at the top of page 2 of the 1040).
But as some of the other posters discussed, sometimes the program likes for things to be entered in a specific order, and doesn’t clarify the tax treatment as well when this doesn’t happen. This is especially possible when going through the dependent care section before earned income is entered. In that case, as spatch1215 said, deleting the 2441 and re-entering can produce the correct result.
@J O, hopefully something I or the earlier posters wrote helps, but let us know here if it doesn’t!
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