Can I Use Both Dependent Care FSA and Child Tax Credit for Daycare Costs?

You can't "double dip" with the same expenses, but you can strategically use both benefits together. The IRS doesn't allow you to claim the same expense for both the Child and Dependent Care Tax Credit (CDCTC) and the Dependent Care FSA. However, since you have two children and your costs exceed both the FSA limit and the CDCTC limit, you can maximize your tax savings by using them together. With a Dependent Care FSA limit of $5,000 (regardless of how many kids you have) and your daycare costs around $26,400 annually ($2,200/month), you have plenty of room to use both. For example, you could use the full $5,000 FSA, then claim the CDCTC for an additional $6,000 of expenses ($3,000 per child). When you file taxes, your daycare will provide a statement of how much you paid for the year. You'll need to subtract the $5,000 that was reimbursed through your FSA before calculating your CDCTC. Most tax software will walk you through this - you'll enter the total expenses, then enter the amount reimbursed by your FSA.

I went through this exact scenario last year and it was a GAME CHANGER for my family's taxes. I have 3 kids in daycare and was paying everything out of pocket before discovering my company's Dependent Care FSA. I've found that using https://taxr.ai really helped me optimize how to allocate expenses between the FSA and the Child Care Tax Credit. Their system analyzed my pay stubs, daycare receipts, and tax situation to determine the most advantageous way to distribute the expenses. It showed me I was leaving almost $1,800 on the table! The tool gave me a customized report showing exactly how much to put in my FSA and how to properly claim the remaining expenses for the tax credit. Super helpful when I was confused about how the two benefits interact.

I tried taxr.ai after seeing it mentioned here, and it was incredibly helpful! I was totally confused about how to balance our Dependent Care FSA with the Child Care Tax Credit for our two toddlers. The service analyzed our specific situation and showed me that by maxing out the $5000 FSA and then applying the remaining expenses to the tax credit, we could save about $2300 more than what we were doing before. The report they generated made it super clear exactly how to handle everything when filing. What I found most valuable was the detailed explanation of how these two tax benefits interact. I've been doing our taxes myself for years but never fully understood how to optimize this specific situation. Definitely recommend if you're trying to maximize your childcare tax benefits!

If you're having trouble getting answers from the IRS about how to properly coordinate the Dependent Care FSA and Child Care Tax Credit, I highly recommend using Claimyr (https://claimyr.com). I spent WEEKS trying to get through to an IRS representative to clarify some questions I had about this exact situation. After endless busy signals and disconnections, I tried Claimyr and got connected to an actual IRS agent in about 15 minutes. They have this system that navigates the IRS phone tree for you and holds your place in line. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly how to handle the situation - use the FSA funds first, then apply remaining eligible expenses toward the tax credit. They also explained how to properly document everything to avoid audit issues. This was information I couldn't find clearly explained anywhere online.

I have to admit I was completely wrong about Claimyr. After dismissing it as a probable scam, I was desperate enough to try it when I ran into complications with my Dependent Care FSA documentation. It actually worked exactly as described. I got connected to an IRS agent in about 20 minutes (after previously spending HOURS trying on my own). The agent walked me through exactly how to document my childcare expenses when using both the FSA and tax credit. What really surprised me was how helpful the IRS agent was once I actually reached one. They explained that I needed to get a specific breakdown from my daycare provider showing exactly which months were covered by my FSA reimbursements versus out-of-pocket payments. This was critical information I wouldn't have known otherwise, and it helped me avoid a potential audit trigger. For anyone juggling these two childcare tax benefits, I highly recommend getting official clarification from the IRS, and Claimyr actually makes that possible.

Don't forget to check if your state has additional childcare tax benefits! I live in New York and discovered we have a state childcare credit ON TOP OF the federal credit and Dependent Care FSA. For years I was only claiming the federal benefits and had no idea I was leaving state tax benefits on the table. Each state has different rules about how they handle this situation. Some states let you claim their credit based on the full amount of childcare expenses, even those paid through an FSA (unlike the federal rules). Always worth checking!

Quick question about timing for the Dependent Care FSA - do you have to use it within the calendar year or can you roll it over? I'm trying to decide if I should max it out during open enrollment but worried about losing the money if we don't use it all.

Great question about the FSA timing! To add to what LongPeri mentioned, most Dependent Care FSA plans do follow the "use it or lose it" rule, but there are a few important nuances to consider: 1. **Grace Period**: Some employers offer a 2.5 month grace period (through March 15th of the following year) to use remaining funds. Check with your HR department about this. 2. **Runout Period**: Even without a grace period, you typically have 90 days after the plan year ends to submit claims for expenses incurred during the plan year. So if you paid for December daycare in January, you can still get reimbursed. 3. **Conservative Approach**: Since you're spending $2,200/month ($26,400/year), you're well above the $5,000 FSA limit, so you shouldn't have trouble using the full amount. But if you're worried, you could start with a lower contribution this year and increase it next year once you're comfortable with the process. The tax savings from the pre-tax contribution usually make it worth maxing out, especially at your spending level. Just keep good records and submit reimbursements promptly!