Is there a limit for a DCRA election?
By law, the maximum amount you may allot for a DCRA is $5,000 per household ($2,500 if married filing separately). You could exceed the $5,000 limit if both you and your spouse work for employers offering an FSA and the combined total of the payroll deductions you each elect for a DCRA goes beyond the applicable limit of $5,000. So, it is important that you plan carefully.
The IRS allows an income tax credit of up to $6,000 of dependent care expenses if you have two or more dependents (up to $3,000 for one dependent). The amount of the credit is based on your adjusted gross income and applies only to your Federal income taxes. So, while the maximum allowed under a DCRA is $5,000, you may be able to apply the incremental difference between the DCRA maximum and the Child and Dependent Care Tax Credit depending on your tax situation. For more information about this tax credit, please see IRS Form 2441 and the accompanying instructions.