In figuring the Child and Dependent Care credit, take into account qualifying expenses up to a limit of $3,000 for one dependent, or $6,000 for two or more dependents. The $3,000 or $6,000 limit applies even if your actual expenses are much greater. This $3,000 or $6,000 limit must be reduced by tax-free benefits received from an employer's dependent care plan. The credit is also limited to your (or your spouse's) earned income.
Employer Provided Benefits:
Although there may be expenses in excess of the $5,000 of dependent care benefits, there is no credit when the dependent care benefit exceeds $3,000. The reason for this is that the maximum allowable expenses that can be used for the credit is $3,000. Such an amount of the dependent care benefit disqualifies you from the child tax credit. Lines 27 through 31 of the Form 2441 will show this.
If you have, for example, a dependent care benefit amount of $2,000 with $7,000 of expenses, only $1,000 would be allowed for the calculation of the credit. The IRS does not allow the maximum dependent care benefit of $5,000 plus an addition of the maximum credit amount of $3,000 for the child.
For more information, please see IRS Publication 503 Child and Dependent Care Expenses.