Turbotax is saying that we don't qualify for the Child care credit. We contributed $5,000 to a DCA, but I've entered $16,758 in expenses.

[toyamk]

We are receiving the following message when entering information for the Child and Dependent Care Credit.  The money we spent on child care vastly exceeded the amount we contributed to DCA. How do I fix this?

Since your $16,758 in care expenses wasn't enough to use up the $5,000 you contributed to your employer's dependent care plan, your Child and Dependent Care Credit is $0.

The $2,000 of unspent care benefits will be added to your W-2 as taxable income.

[xmasbaby0]

You will not get the childcare credit until (unless) you enter income earned from working.   The credit does not work unless you enter your income first.   If you are filing a joint return you must show income for both spouses, or show that one or both of you was a student or disabled.   If you have self-employment income and show a loss you will not get the childcare credit.  You will not get the credit if you are filing married filing separately.  

If you have entered all of your income and you have entered your dependent(s) then work on the childcare credit by entering the Tax ID or Social Security number of your childcare provider and enter the amount you paid for the childcare.

One of the most common mistakes that messes up the childcare credit for people is listing all of the earned income under only one name on a joint return.  Make very sure that your incomes are listed under each of your names.  It’s pretty easy to check.  Go to the Income section, and click “update” on Wages and Salary.  That will take you to the W-2 Summary.  Do you see income listed under both of your names? 

 The person receiving the care had to be 12 or under or qualified as mentally or physically disabled. To claim the childcare credit you need to be filing as Head of Household or Married Filing Jointly. (NOT married filing separately)

 If your child was born in 2022 make sure you say the child lived with you all year. The credit is a percentage of your expenses based on your AGI (the higher the income, the lower the percentage)  You must provide the Social Security number for each child you are claiming, and the Social Security number or Tax ID for each care provider. 

In the case of divorced or never-married parents—only the custodial parent can use the childcare credit.

And remember that the childcare credit is a NON-refundable credit.  It can reduce your tax owed down to zero, but it is not added to your refund.

https://ttlc.intuit.com/questions/1900643-what-is-the-child-and-dependent-care-credit

[toyamk]

Thank you for the detailed response!

Only one of us received income, the other was a full time student. The W-2 income has already been entered, and when filling out the section for the dependent care credit we marked that the other was a full time student for all 12 months and did not work during this time.

Our child was born in 2021, and we had full time care for the entire year. I have tried entering even more of our expenses (In total it was around $25,000) and I'm still getting the same message. I don't understand why it's saying that $25,000 isn't enough to use up the $5,000 we contributed to the DCA.

Since your $25,000 in care expenses wasn't enough to use up the $5,000 you contributed to your employer's dependent care plan, your Child and Dependent Care Credit is $0.

[xmasbaby0]

Since one of you was a student without earned income, the credit is calculated based on $250 per month attributed to the spouse who was a student.  So that is why your credit is much lower than for two working spouses.

[toyamk]

Shouldn't we still be eligible for $3000 ($250x12) ? From what I'm reading it looks like turbotax is saying we don't get any.

[xmasbaby0]

You put pretax money into the DCA and got that amount ---- you cannot double dip and get another $3000 credit.   

[toyamk]

Ok, I think I understand now.

So we can either use the Dependent Care FSA or claim the dependent care credit, but not both?

If that's the case, do you know which is better for us to do? We will be having a second child in August of this year. Annual income is roughly $300,000.