dependent daycare FSA and dependent care credit

Not for the same expenses. You can't take a credit for day care expenses that are paid from or reimbursed from a pre-tax employer benefit plan such as DCAP. Look at Box 10 of your W-2. If there is an amount in that box, you must complete Part III (page 2) of the Form 2441 to determine whether or not you may have taxable benefits or are entitled to an additional dependent care credit.

In the Bay area, you easily pay $2500 per month for 2 kids in daycare. So in 2 months you use up the maximum dependent day care. There are 10 more months in the year. So in this case you could both?

You do not get to defer $5000 tax free for child care then take a credit for another $5k in child care expenses.

As Alan said, you reconcile the $5K tax-free (including Soc. Sec. and Medicare tax-free) employer plan on page 2 of Form 2441, then you get the credit for up to another $1K out-of-pocket expense on the front of the form.

At least this credit never totally phases out, you always get at least

20% for the credit (and IIRC it's allowed for AMT too). California credit is refundable but does phase out entirely over a certain AGI.

-Mark Bole