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Dependent Care Tax Credit



With the new tax law, I see there is a possible $8,000 tax credit if you have $16,000 in eligible childcare expenses for 2 kids. Previously, we never claimed a credit like this, but instead utilized a dependent care FSA.

My wife and I have 2 kids in daycare right now. 


I'm wondering if we can take advantage of both the FSA and the Tax Credit? If I expect our annual expenses to be around $24,000 (total for both), am I correct in saying that if we reimburse ourselves $7,000 from the FSA that the other ~ $17,000 in expenses are eligible for the 50% credit on up to $16,000?


I read an article stating that the Child Care Tax Credit will only be applicable to the amount that was “unreimbursable” from your FSA. It seems like I can "double-dip" so to speak.


Can someone confirm my logic? Thanks!


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2 Replies
Employee Tax Expert

Dependent Care Tax Credit

I wouldn't call it double dipping since any contributions that you make to a dependent care FSA cannot be used for the child and dependent care tax credit and vice versa. But you can take advantage of any combination of the dependent care FSA and the child and dependent care tax credit to maximize your total economic benefit.


The dependant care FSA limit was increased to $10,500 for 2021 but since this is less than you are spending you have a nice opportunity to take advantage of additional tax breaks.



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Dependent Care Tax Credit

If they treat the Dependent Care Tax Credit the same in tax year 2021 as they have in recent prior years, you are not allowed to "double" dip in the way you are portraying. Even though you have $24K in expenses and set aside $7K in the FSA, you are only allowed to claim $9K (=16,000-7,000 FSA), eligible for reimbursement up to 50%. 

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