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The amount of dependent care benefits you can exclude or deduct is limited to the smallest of:

  1. The total amount of dependent care benefits you received during the year,
  2. The total amount of qualified expenses you incurred during the year,
  3. Your earned income,
  4. Your spouse’s earned income, or
  5. $5,000 ($2,500 if married filing separately)

Any benefits that are not excluded or deducted are included in your income. Taxable benefits will be reported with your wages on line 7 of your tax return.

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