re: Daycare taxes with a FLEX account?

For Federal taxes only, when calculating the child care credit, you can use up to $3,000 of expenses per child, up to a max of $6,000 total. However, that amount is reduced by whatever you use a dependent care account to pay for.

For example, if I pay $7,000 per kid, 2 kids, that's a total of $14,000. When calculating the credit, I use $3,000 per kid, total $6,000. However, that $6,000 is reduced by the $5,000 I put into the dependent care account. So, my tax credit is based on $1,000.

Just keep in mind that for many people, the deduction from the dependent care account is worth more than the credit. If you are in the 25 percent marginal tax bracket, you are saving 25 cents in tax for each dollar you put away. The credit for someone in that same tax bracket is 20 cents on the dollar.