The child and dependent care credit is a federal tax credit that offsets part of what you pay for child care or care of a disabled dependent while you work. It can reduce your tax bill by 20% to 35% of qualifying expenses, up to $3,000 for one qualifying person or $6,000 for two or more. The exact percentage depends on your income.
How the Credit Works
The credit reimburses a percentage of the care expenses you pay so that you (and your spouse, if married) can work or look for work. It is nonrefundable under permanent tax law, meaning it can reduce your federal tax liability to zero but won’t generate a refund beyond that.
You calculate the credit by multiplying your qualifying expenses (capped at $3,000 for one qualifying person or $6,000 for two or more) by a percentage that ranges from 20% to 35%. The percentage you get depends on your adjusted gross income (AGI). At the low end, someone earning under $15,000 receives the full 35%, which translates to a maximum credit of $1,050 for one qualifying person or $2,100 for two. As income rises, the percentage drops in steps of one percentage point for every $2,000 in additional AGI. Once your AGI exceeds $43,000, the rate floors out at 20%, giving a maximum credit of $600 for one qualifying person or $1,200 for two.
Here is how a few income levels translate into credit percentages:
- AGI of $15,000 or less: 35%
- AGI of $25,000 to $27,000: 29%
- AGI of $35,000 to $37,000: 24%
- AGI over $43,000: 20%
Most families with two working parents and moderate incomes will land at the 20% rate. Even at that floor, the credit is worth claiming because it directly reduces your tax bill dollar for dollar.
Who Counts as a Qualifying Person
Three categories of people can qualify you for the credit:
- Children under 13: Your dependent child must have been under age 13 when the care was provided.
- A disabled spouse: Your spouse who is physically or mentally incapable of self-care and lived with you for more than half the year.
- A disabled dependent of any age: Someone who is physically or mentally incapable of self-care, lived with you for more than half the year, and was either your dependent or could have been your dependent except that they had gross income of $5,200 or more, filed a joint return, or you yourself could be claimed on someone else’s return.
The IRS defines “incapable of self-care” as being unable to care for one’s own hygiene or nutritional needs, or requiring full-time attention from another person for safety reasons. This applies whether the condition is physical, mental, or both.
Qualifying Expenses
The care must be work-related, meaning you pay for it so you can hold a job, actively look for work, or attend school full-time (if you are the lower-earning spouse on a joint return). Expenses that qualify include:
- Day care centers and nursery schools: Fees for licensed or unlicensed programs that watch your child while you work.
- Before- and after-school programs: Costs for supervised care outside school hours.
- Day camps: Summer day camps and similar programs count.
- In-home caregivers: Wages paid to a nanny, babysitter, or housekeeper who provides care in your home. If the worker is your employee (not an independent contractor), you may also owe household employment taxes.
- Care for a disabled dependent: Adult day care or in-home aides for a qualifying disabled spouse or dependent.
Overnight camps do not qualify. Neither does tuition for kindergarten and above, because that counts as education rather than care. If a bill bundles care and education together (common at preschools), only the care portion is eligible. Transportation to and from the provider does not count unless the provider arranges and charges for it as part of the care.
Income and Filing Requirements
Both you and your spouse (if filing jointly) must have earned income during the year. Earned income means wages, salaries, tips, or net self-employment earnings. If one spouse is a full-time student or physically or mentally incapable of self-care, the IRS treats that spouse as having earned $250 per month for one qualifying person or $500 per month for two or more, which preserves your eligibility.
You must file using single, head of household, qualifying surviving spouse, or married filing jointly status. Married filing separately disqualifies you entirely.
Your qualifying expenses cannot exceed the earned income of the lower-earning spouse. If one spouse earned $2,000 for the year, that is the cap on expenses you can claim, regardless of how much you actually spent on care.
How Employer Benefits Affect the Credit
Many employers offer a dependent care flexible spending account (FSA), which lets you set aside up to $5,000 pretax per year for child care costs. Money you run through a dependent care FSA reduces the expenses you can claim for the credit. For example, if you put $5,000 into your FSA and spent $7,000 total on care for two children, only $1,000 of the remaining expenses ($6,000 cap minus $5,000 FSA) would be eligible for the credit.
For many families earning over $43,000, the dependent care FSA provides a bigger tax savings than the credit alone because the FSA shields money from both income tax and payroll taxes. But if your employer does not offer an FSA, the credit is your primary tax break for care costs.
How to Claim the Credit
You claim the credit by filing IRS Form 2441, Child and Dependent Care Expenses, alongside your Form 1040. Most tax software walks you through this automatically when you enter child care expenses.
You will need each care provider’s name, address, and taxpayer identification number (TIN). For a day care center, that is typically an employer identification number (EIN). For an individual caregiver, it is their Social Security number. If a provider refuses to give you their TIN, you can still claim the credit by showing you made a good-faith effort to get it: note the provider’s information on Form 2441 and write “See attached statement” explaining what happened.
Keep receipts, canceled checks, or bank statements showing what you paid, to whom, and for what dates. The IRS does not require you to attach them to your return, but you will need them if your return is questioned later.
A Quick Example
Say you and your spouse both work, earn a combined AGI of $60,000, and pay $8,000 a year for day care for your two children, ages 3 and 7. Your credit percentage at that income level is 20% (the floor rate for AGI above $43,000). Your qualifying expenses are capped at $6,000 for two children. Multiply $6,000 by 20%, and your credit is $1,200, taken directly off the taxes you owe.
If only one child needed care, the expense cap would drop to $3,000, and your credit would be $600.