How This Is Calculated
This calculator applies IRC §21 (Child and Dependent Care Credit), IRC §129 (Dependent Care Assistance Program), and IRC §24 (Child Tax Credit) as amended by the One Big Beautiful Bill Act of 2025 (PL 119-21) for tax year 2026. The calculation proceeds in four sequential steps. For the decision-making framework and deeper mechanics, see our Dependent Care FSA vs Tax Credit Guide.
Step 1: Dependent Care FSA Benefit Confirmed
Contributions to a Dependent Care FSA are excluded from gross income under IRC §129. The exclusion covers federal income tax AND Social Security/Medicare (FICA) taxes. The 2026 cap under OBBBA is $7,500 for Single/HOH/MFJ and $3,750 for MFS.
FSA tax savings = FSA contribution × (marginal federal rate + 7.65% FICA). The calculator estimates marginal rate from AGI and filing status using the 2026 brackets from Rev. Proc. 2025-32. State income tax savings are not included.
Step 2: Credit Expense Base After FSA Offset Confirmed
IRC §21(c) caps qualifying expenses at $3,000 (one qualifying person) or $6,000 (two or more), and then reduces that cap dollar-for-dollar by the amount excluded under §129. This is the no-double-dip rule.
Expense base = MIN(actual care expenses, cap) − FSA contribution, floored at $0. If you have one child and max $7,500 FSA, your credit base is $3,000 − $7,500 = $0. If you have two children and contribute $4,000 FSA with $8,000 in care expenses, your credit base is $6,000 − $4,000 = $2,000.
Step 3: Applicable Percentage by AGI Confirmed
Under OBBBA, the CDCTC applicable percentage follows a 50/35/20 tiered structure. The starting rate is 50 percent; it phases down 1 point per $2,000 of AGI above $15,000 to a floor of 35 percent. The 35 percent plateau holds through AGI $75,000 (single) or $150,000 (MFJ). Above that, it phases down 1 point per $2,000 single ($4,000 MFJ) to a floor of 20 percent.
CDCTC = Expense base × Applicable percentage. This credit is nonrefundable, so it can only reduce federal income tax actually owed. The final credit is also capped by the lower-earning spouse's earned income (earned income limit under §21(d)).
Step 4: Child Tax Credit (CTC) Confirmed
Under IRC §24 as amended by OBBBA, the CTC equals $2,200 per qualifying child with SSN under age 17. It phases out $50 per $1,000 of AGI above $200,000 (single/HOH) or $400,000 (MFJ). Up to $1,700 per child is refundable as the Additional Child Tax Credit (ACTC), subject to a 15 percent earned-income phase-in.
CTC = (# of qualifying kids × $2,200) − $50 × (# of $1,000 increments above threshold). Floored at $0. This is separate from and stackable with both the CDCTC and the FSA.
Key interaction: FSA reduces CDCTC base but doesn't reduce CTC. Contributing to a Dependent Care FSA directly shrinks your CDCTC expense base under §21(c), but has zero effect on your Child Tax Credit under §24. The CTC depends only on number of qualifying children and AGI phase-out, not on childcare expenses. Confirmed
Simplified calculation notice: This calculator uses simplified marginal-rate estimation for FSA savings, standard 2026 brackets, and standard deductions for Single ($16,100), MFJ ($32,200), HoH ($24,150), MFS ($16,100). It does not model itemized deductions, other above-the-line adjustments, AGI-dependent credit phase-outs beyond CTC, Additional Medicare Tax impact on FSA savings, state income tax savings, or the student/disabled-spouse imputed earned income rule. For complex scenarios, consult a tax professional.
Assumptions
- Tax year 2026 CDCTC rate tiers (50%/35%/20%) per IRC §21(a)(2) as amended by OBBBA.
- 2026 DCFSA limit $7,500 / $3,750 MFS per IRC §129(a)(2)(A) as amended by OBBBA.
- 2026 CTC $2,200 per child with $1,700 refundable ACTC cap per IRC §24 as amended by OBBBA.
- 2026 tax brackets and standard deductions from Rev. Proc. 2025-32.
- Both spouses on MFJ have earned income greater than expenses (no earned-income limit binding). Student/disabled spouse imputation not applied.
- Qualifying expenses are all eligible under IRS Pub 503 (daycare, preschool, day camp, after-school; not K-12 tuition or overnight camp).
- No state childcare credits, no local tax, no FICA cap binding on the FSA user.
- CDCTC final credit is not further limited by federal income tax liability in this estimate (nonrefundability flag shown if credit exceeds AGI-based rough liability).