My child and dependent care credit was $1200 last year and this year is only $200. Can you please give me an explanation as to why?

[Opus 17 · Accepted solution]

I'm guessing you had a $5000 FSA for dependent care.  Expenses paid from an FSA come out of the maximum expense limit for the credit.  But the FSA saves you more money than the credit, so you're better off.

[danawork1]

I did! Thank you so much for helping me understand that better!

[kdw133]

I have the same situation.

2018 - $1200 child care credit (Schedule 3, Line 49)

2019 - only getting $200 child care credit

Our situation has changed very little.  In both years we did a $5,000 FSA for dependent care and had > $6,000 in child care expenses for 3 kids.

I don't understand why it is dropping from $1200 to $200.

[KrisD15]

For both years, 2018 and 2019, the credit for Child and Dependent Care is 20-35% of the expense. 

If, for both years, you had about $1,000 in un-reimbursed expenses, the most the credit could be would be $350.

I assume you're in the 20% bracket, so the credit would be $200.

I would also assume the 2018 credit is not correct. You would need to look at the 2018 Form 2441 to see what was reported as expenses. 

[EvanMal]

Sorry @Opus 17  to bring up an old topic, but it seems to be impacting me for 2022. Could you point to some IRS documentation that states this?

As I understood it, you can fully take advantage of both a dependent FSA and child care tax credit if you have  enough expenses to fully cover both. In other words, if you have more than $11000 in dependent care for two children, you can get the (full $5k in FSA) and (the full $6000 x times .2 and .35 depending on AGI)

[Opus 17]

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@EvanMal wrote:

Sorry @Opus 17  to bring up an old topic, but it seems to be impacting me for 2022. Could you point to some IRS documentation that states this?

As I understood it, you can fully take advantage of both a dependent FSA and child care tax credit if you have  enough expenses to fully cover both. In other words, if you have more than $11000 in dependent care for two children, you can get the (full $5k in FSA) and (the full $6000 x times .2 and .35 depending on AGI)

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Sorry, it never worked that way.

If you download a copy of form 2441 and the instructions and work through the form, you will see how the calculation occurs, although I don't know if the limitation is explicitly explained there.

https://www.irs.gov/forms-pubs/about-form-2441

Also see "Dependent Care Benefits" on page 11 here, which does explain the limitation in detail.

https://www.irs.gov/pub/irs-pdf/p503.pdf

For what it's worth, the FSA is far more valuable than the credit, for anyone whose income is more than about $35,000.