Flexible spending account for dependent care

Dependent care calculator at the bottom of the page: Dependent Care Calculator

You can't deduct child care, but you can get a credit. The credit for most people that make a decent amount of money, is 20 percent of the first 3,000 per child, limited to two children.

But if you use the DCFSA, since that money is deducted from your taxable wages, you are basically saving your marginal tax rate - which again, for most taxpayers who make decent money, is more than 20 percent.


Also, if you have only one kid, you can save on $5,000 worth of cost for that one kid, as opposed to only $3,000 worth of costs for that second kid.

When I had one young child, we put in $5,000 and our marginal rate was 28%. So we saved 28% of 5,000 = $1,400. If we just did the credit, it would have saved 20% of 3,000 = $600.

When we had second kid, we could not add more to the account (which sucks!) but we still saved $1,400. In addition, since our total costs were over $3,000 per kid, we got to apply $1,000 to the credit, saving us $200, total savings $1,600. If we just did the credit, it would have been 20% of $6,000, so total $1,200.

So yes, you are leaving some money on the table.

EDIT: To clarify...each dollar can only be used for DCFSA or the credit. You can't double dip.

My company matches 25% of what I put in up to the cap. I put in $4k, they put in the other $1k. So I got that going for me. Plus the pre-tax savings.