What's the Difference Between the Dependent Care FSA and the Child and Dependent Care Credit?

The Dependent Care FSA and the Child and Dependent Care Credit are both tax benefits for childcare expenses, but they can't fully stack on top of each other. A Dependent Care FSA lets you set aside up to $5,000 per year through your employer with pre-tax dollars, which reduces both your income tax and payroll taxes. The Child and Dependent Care Credit allows you to claim a credit on up to $3,000 of childcare expenses for one child ($6,000 for two or more), at a rate between 20% and 35% depending on your income. The catch is that expenses covered by your FSA can't also be used to claim the credit — so if you max out a $5,000 FSA for two children, you can only claim the credit on up to $1,000 of remaining expenses. For most working parents, using the FSA first and then claiming the credit on any remaining qualifying expenses produces the best result.