Whether you’re paying for day care, preschool, or daily help for a loved one in need, care costs could add up to a large slice of your income. The Child and Dependent Care Tax Credit aims to defray some of that expense for qualifying taxpayers, as long as certain conditions are met. Here’s more about who qualifies and what type of expenses are eligible for the Child and Dependent Care Tax Credit.
What is the Child and Dependent Care Tax Credit?
The Child and Dependent Care Tax Credit is a credit that taxpayers could claim if they’ve spent money on qualifying care expenses for their child or other eligible dependent while they work or seek work. This credit could reduce the amount of federal taxes they owe, and eligible taxpayers could claim this credit when they file their federal taxes.
How much is the Child and Dependent Care Tax Credit worth?
The value of the Child and Dependent Care Tax Credit varies depending on your income and eligible care expenses (also known as work-related expenses). But there’s a limit to how much in work-related expenses you can use to determine your credit. If you have 1 qualifying child or dependent, you can count up to $3,000 in work-related expenses for tax year 2023, even if you spent much more than that. For 2 or more qualifying dependents, the amount increases to $6,000—the maximum allowable amount of expenses regardless of how many dependents you have. Once you determine your work-related care expenses within those dollar limits, you can figure out your credit’s value by multiplying your maximum allowable expenses by the percentage below that corresponds to your adjusted gross income (AGI).
| Adjusted gross income | Percentage to use in credit calculation |
|---|---|
| $0 to $15,000 | 35% |
| Over $15,000 to $17,000 | 34% |
| Over $17,000 to $19,000 | 33% |
| Over $19,000 to $21,000 | 32% |
| Over $21,000 to $23,000 | 31% |
| Over $23,000 to $25,000 | 30% |
| Over $25,000 to $27,000 | 29% |
| Over $27,000 to $29,000 | 28% |
| Over $29,000 to $31,000 | 27% |
| Over $31,000 to $33,000 | 26% |
| Over $33,000 to $35,000 | 25% |
| Over $35,000 to $37,000 | 24% |
| Over $37,000 to $39,000 | 23% |
| Over $39,000 to $41,000 | 22% |
| Over $41,000 to $43,000 | 21% |
| Over $43,000 | 20% |
If you have multiple dependents and your AGI is under $15,000, the most your credit could be worth is $2,100. (That’s 35%, the highest percentage allowable, of $6,000, the highest expenses allowable.) If you have 1 dependent with qualifying care costs of $3,000 and your AGI is over $43,000, your tax credit would be worth $600, because that’s 20% (the percentage aligned with your income level) of $3,000 (your maximum allowable expenses for 1 child).
Is the Child and Dependent Care Tax Credit deductible?
The Child and Dependent Care Tax Credit is, as the name says, a credit—and a credit is different from a tax deduction. A tax deduction reduces a taxpayer’s income that’s subject to taxes. A credit, on the other hand, directly reduces the amount of taxes you owe dollar for dollar by the exact credit amount.
The Child and Dependent Care Tax Credit is nonrefundable. That means if a taxpayer qualifies for $600 of this credit but only owes $400 in federal taxes for a given year, that taxpayer will have the $400 taxes covered by the credit but will not receive the remaining $200 as a refund.
Who qualifies as a dependent for the Child and Dependent Care Tax Credit?
There are some common types of people you might care for who could make you eligible for the Child and Dependent Care Tax Credit. These include:
- children under 13 who lived with you for more than half the tax year
- a spouse or other dependent who was unable to physically or mentally care for themself and lived with you for more than half the tax year
What are qualifying expenses for the Child and Dependent Care Tax Credit?
Expenses that are eligible to be offset by the Child and Dependent Care Tax Credit have to clear the following 2 hurdles:
- The expenses must allow you to work or seek work.
- The expenses must go toward a qualifying person’s care.
If you go out to dinner and hire a babysitter to watch your kids, that’s not an applicable expense because the babysitting fee didn’t allow you to work. The money you shell out for your 10-year-old’s after-school care while you work those afternoons could count as a qualifying expense.
Other qualifying expenses could include the following:
- Pre-kindergarten education in nursery and preschool programs
- Qualified dependent care centers (such as licensed day cares that comply with all applicable state and local regulations)
- Summer day camps
- Transportation costs that are necessary for your dependent’s care
- Household services—such as housekeeping, cooking, and babysitting—that partly contribute to the well-being and protection of a qualifying dependent
Importantly, expenses that have been reimbursed by your employer under a dependent care assistance program (dependent care FSA) can’t be counted toward work-related expenses.
Even if you’re working and paying for a dependent’s care, you can’t claim the credit if the paid care provider is one of the following:
- your spouse
- the child’s parent
- any of your other dependents
- your child, age 18 or younger, even if you don’t claim them as a dependent
Who qualifies for the Child and Dependent Care Tax Credit?
Taxpayers could claim the Child and Dependent Care Tax Credit if the following things are true:
- You earned income.
- You paid for care for a qualifying child or dependent so you could work or look for work.
Some more requirements: If you’re married, you generally must file jointly to claim this credit—and both spouses typically have to be working or seeking work. Some exceptions: If one spouse is a full-time student, is unable to care for themselves, or if you’re legally separated or living apart, you might still be able to claim the credit.
Does the Child and Dependent Care Tax Credit have any income limit?
For tax year 2023, there’s no upper income limit that would prevent you from claiming the Child and Dependent Care Credit, but keep in mind that your work-related expenses are limited to the lower of your and your spouse’s earned income. In other words, if your or your spouse’s individual earnings are less than your qualified expenses, then you will only be allowed to calculate the credit based on the lowest of these values. There was an income limit in tax year 2021, however, so it’s smart to check with a tax pro or IRS.gov about an income maximum before you claim the credit. In either case, eligible people with higher incomes receive a lower credit amount because of the percentage scale in the table in this article.
Should you claim the Child and Dependent Care Tax Credit?
Since the Child and Dependent Care Tax Credit could only defray taxes owed (rather than reduce your taxable income like a deduction would), it might make sense to pursue the credit only if you know you will owe taxes for a given tax year.
You’ll also want to consider any benefits related to child care costs that your employer may offer. Some employers allow employees to set aside pre-tax dollars to fund child care, which could help reduce your taxable income and potentially save you more than this credit would when you file taxes. You still may claim the Child and Dependent Care Tax Credit in this case, but you’d have to subtract what you save through your employer from your credit dollar limit and total work-related dependent care expenses to figure out how much you could claim through the credit. The same goes for any direct payment your employer might offer to you or your care provider.
How to claim the Child and Dependent Care Tax Credit
Come tax time, claiming this credit will require some extra paperwork. You’ll need to submit Form 2441 along with whichever version of Form 1040 you file. Keep in mind that claiming this credit may impact your ability to claim other tax credits, and vice versa.