Should I use the Child & Dependent Care Credit or a dependent-care FSA?

Often you'll use both, but the dependent-care FSA usually wins first for higher earners. A dependent-care FSA lets you set aside up to $5,000 pre-tax (married filing jointly) for daycare, preschool, or after-school care, avoiding income and payroll tax. The Child & Dependent Care Credit covers a percentage (20%–35%) of up to $3,000 of expenses for one child or $6,000 for two, but the percentage shrinks to 20% above modest income, so it's worth $600–$1,200 for most working families. Key rule: you can't claim the credit on the same dollars run through the FSA. A common move is to fund $5,000 in the FSA, then claim the credit on up to $1,000 more if you have two or more kids. Care must let both spouses work or look for work.