How Much Dependent Care Credit Can Physician Couples Really Get?
Spoiler: It’s Usually Just a Few Bucks with a Dependent Care FSA—Even on $50K of Childcare Expenses
Meet Dr. Sunshine, a nephrologist running her own private practice, and her husband, a successful tech executive. In 2024, they spent a whopping $50,000 on child care for their two children, ages 8 and 10. Despite earning around $1 million per year, $50,000 on child care still stings.
Fortunately, Dr. Sunshine’s husband has access to a Dependent Care Flexible Spending Account (FSA) through his employer. He contributed the maximum allowed—$5,000— to use pre-tax dollars toward their child care costs.
Yesterday, they asked me:
“Since the Dependent Care FSA is ‘use it or lose it,’ we definitely want to use the full $5000 to pay for child care expenses. Can we still qualify for the Dependent Care Credit?”
The short answer: Yes—but don’t get too excited.
Understanding the Dependent Care Credit
The Dependent Care Credit is designed to encourage both parents to work by offering a modest tax credit to offset child care costs. The IRS consideres these expenses to be “employment-related expenses”—necessary in order for both spouses to earn money.
But, here’s the catch: the credit is income-based and for households like Dr. Sunshine’s, the benefit is sharply limited.
Here’s how it works:
If your household Adjusted Gross Income (AGI) is over $45,000, the credit rate drops to 20% (which includes virtually all physician households).
You can only apply that 20% to a maximum of $3,000 in child care expenses for one child, or $6,000 for two or more children.
So even though Dr. Sunshine and her husband spent $50,000 on child are, the IRS does not care - they only allow them to apply $6,000 toward the credit calculation (because they have two kids).
Their dependent care credit:
20% of $6,000 = $1,200.
That’s the maximum credit available to them —even if they spent nearly ten times that.
But Wait—They Used a Dependent Care FSA
Here’s the kicker: any amount used through a Dependent Care FSA directly reduces the expenses eligible for the credit.
In their case, they contributed and used $5,000 through the FSA.
So, their eligible expenses for the Dependent Care Credit drop from $6,000 to $1,000:
$6,000 max – $5,000 used through FSA = $1,000 eligible for the credit
20% of $1,000 = $200 Dependent Care Credit
That’s it. $200. That’s less than Dr. Sunshine probably makes in 30 minutes on call.
What If They Had Only One Child?
Then the maximum eligible expense for the credit would have been $3,000. After subtracting the $5,000 FSA use:
$3,000 – $5,000 = -$2,000
Result: No credit at all.
Physician-Friendly Summary:
If you’re a dual-income physician couple who spends more than $6000 on child care and uses the full $5,000 Dependent Care FSA:
1 child → You get $0 Dependent Care Credit
2+ children → You get $200 Dependent Care Credit
Without the Dependent Care FSA:
1 child → You get $600 Dependent Care Credit
2+ children → You get $1200 Dependent Care Credit
Final Thoughts
For physician households, don’t waste time crunching Dependent Care Credit numbers every year. Just remember this rule of thumb:
Use full $5,000 FSA → Max $200 credit (only if you have 2+ kids)
Without FSA → Max $600 (for one kid) or $1200 credit (for two or more)
Use it to quickly sanity-check your tax return - and get back to what really matters: catching up on sleep or spending quality time with your kids.
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