My wife & I aren't eligible for the dependent care credit but entering what we spent on dependent care increases my refund. Why is that?

[danielajf]

My wife & I get $5,000 of employer-provided dependent care benefits (we each have a dependent care FSA and set aside $2,500 pre-tax each year), we get $2,000 as a child & other dependent tax credit, but we don't get any benefit by entering our dependent care expenses (incomes are too high). I get through to the end of that section in TurboTax - entering $7,210 in expenses and getting the 'you don't qualify' message - but then my state and federal refunds go up. Why would they change if we don't qualify?

[MaryK4]

Because your employer child care amount is on your W2, TurboTax adds it as income when you entered the W2- then when you enter the expenses, it pulls that amount from your taxable income.  If you do not use the Child Care benefits for child care expenses, it is added as income- it is just the order of entries in TurboTax.