The amount of dependent care benefits you can exclude or deduct is limited to the smallest of:
- The total amount of dependent care benefits you received during the year,
- The total amount of qualified expenses you incurred during the year,
- Your earned income,
- Your spouse’s earned income, or
- $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 1 of your tax return.