For most couples, using money from a flexible spending account offers a bigger tax break than the child-care credit. By Kimberly Lankford, Contributing Editor October 17, 2014 My husband and I both work and have more than $20,000 in annual day-care expenses for our two children. We have dependent-care flexible-spending accounts at work and contribute $5,000 between the two of us. Can we also claim the child-care tax credit for our additional expenses? If not, is it better to use the money from the dependent-care FSAs or to take the child-care credit?See Also: SLIDE SHOW: 50 Ways to Cut Your Health Care Costs Because you have two children in day care and pay more than $6,000 a year for their care, you can use the $5,000 from your flexible spending accounts and also claim the child-care credit for up to $1,000 of expenses. Unless you have a very low income, it’s generally better to use money from your dependent-care FSAs first. Contributing to a dependent-care FSA generally gives you a bigger break than taking the child-care credit because the money you put aside avoids not only federal income taxes but also the 7.65% Social Security and Medicare tax. It may escape state income taxes, too. If you’re in the 25% federal tax bracket and pay 5% in state taxes, for example, you would save $1,883 in taxes. The child-care credit, on the other hand, is worth 20% to 35% of the cost of care (depending on your income), on up to $3,000 of child-care costs for one child or $6,000 for two or more children. The credit is worth 20% of eligible expenses if you earn more than $43,000 per year, so if you choose that route rather than the FSA, the most it can reduce your tax liability is by $600 for one child or $1,200 for two or more children if your income is above that level. Advertisement If you use $5,000 from your dependent-care FSAs, you can’t claim the child-care credit for the same expenses. But because the child-care tax credit limit is based on $6,000 of expenses per year if you have two or more kids and file jointly, as single or as head of household, and the FSA limit is $5,000 per household ($2,500 per person if married filing separately), you can claim up to $1,000 in additional expenses for the credit. That can reduce your tax liability by an extra $200 to $350, depending on your income. You can use money from the a dependent-care FSA or take the child-care credit for the cost of care for your children under age 13 while you work or look for work (both spouses must work, unless one is a full-time student). The cost of day care, a nanny or preschool counts, as do the costs of before-school and after-school care and summer day camp. For more information about the child-care credit, see IRS Publication 503 Child and Dependent Care Expenses Got a question? Ask Kim at email@example.com.