Key Takeaways
- If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under age 13 or a disabled dependent of any age so that you could work, you may qualify for the Child and Dependent Care Credit.
- After-school care and summer day camps can qualify for the Child and Dependent Care Credit, but overnight camps do not.
- Care expenses of up to $3,000 for one qualifying dependent and up to $6,000 for more than one dependent can qualify for the Child and Dependent Care Credit.
Child and Dependent Care Credit for 2024 and 2025
The Child and Dependent Care Credit provides a tax break for many parents who are responsible for the cost of childcare. Though the credit is geared toward working parents or guardians, taxpayers who were full-time students or who were unemployed for part of the year may also qualify.
If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under age 13 or a disabled dependent of any age, you may qualify for a tax credit on your 2024 or 2025 taxes of up to 35% of:
- up to $3,000 of qualifying expenses (for a maximum credit of $1,050) for one child or dependent
- up to $6,000 of qualifying (for a maximum credit of $2,100) for two or more children or dependents
For example, a taxpayer with one qualifying person, $3,000 in qualifying expenses and an AGI of $60,000 would qualify for a nonrefundable credit of approximately $600 (20% x $3,000).
Credit temporarily increased for Tax Year 2021 Only
The American Rescue Plan signed into law on March 11, 2021, brought significant changes to the amount and way that the Child and Dependent Care Credit can be claimed only for tax year 2021. The new law not only increases the credit, but also the amount of taxpayers that will benefit from the credit’s highest rate and it also makes it fully refundable. This means that, unlike previous years, you can still get the credit even if you don’t owe taxes.
Changes to the Child and Dependent Care Credit that apply only for tax year 2021 (the taxes you file in 2022) include:
- The highest credit percentage increased from 35% to 50% of qualifying expenses
- Qualifying child and dependent care expenses increased from $3,000 to $8,000 for one qualifying person and from $6,000 to $16,000 for two or more qualifying individuals
- The adjusted gross income (AGI) level at which the credit percentage is reduced has been increased from $15,000 to $125,000 for 2021
For 2021, the credit phases out as your adjusted gross income (AGI) increases past $125,000. For income levels:
- $125,001 and $183,000 the credit percentage is phased out from 50% to 20%
- $183,001 to $400,000 the credit percentage remains at 20%
- $400,001 to $438,000 the credit percentage is phased out from 20% to 0%
The credit percentage is completely phased out to zero for families with AGIs of $438,000 or more.
Also for tax year 2021, the maximum amount that can be contributed to a dependent care flexible spending account and the amount of tax-free employer-provided dependent care benefits is increased from $5,000 to $10,500.
Purpose of the Child and Dependent Care Credit
The Child and Dependent Care Credit is designed to assist working parents and guardians with some of the expenses involved in raising a child or caring for a disabled dependent. The credit:
- varies, depending on the taxpayer's earned income
- is based on the expenses paid to provide child or dependent care services so that parents can work
- reduces the amount of federal income taxes due, which can in turn increase your refund. This frees up more money for some of the other expenses involved in raising a child
TurboTax Tip:
For tax year 2024 and 2025, the maximum amount that can be contributed to a dependent care flexible spending account and the amount of tax-free employer-provided dependent care benefits is $5,000 ($2,500 if married filing separately).
Qualifications for the Child and Dependent Care Credit
You must meet several criteria to qualify for the Child and Dependent Care Credit. To qualify, you must meet all of the following:
- You (and your spouse, if you are Married Filing Jointly) must have earned income for the tax year.
- You must be the custodial parent or main caretaker of the child or dependent.
- The child or dependent care service must have been used so that you could work or look for employment.
- Your filing status must be Single, Head of Household, Qualifying Surviving Spouse with a qualifying child, or Married Filing Jointly.
- Your child or dependent must be under 13 but there is no age requirement if they are disabled and physically or mentally incapable of caring for themselves.
- The childcare provider cannot be your spouse or dependent or the child's parent.
Qualifying expenses for the Child and Dependent Care Credit
You may be aware that daycare fees qualify for the Child and Dependent Care Credit, but the IRS actually considers much more than just the cost of daycare for this credit. Qualifying expenses also include:
- Childcare provided by a babysitter or licensed dependent care center.
- The cost of a cook, housekeeper, maid, or cleaning person who provides care for the child or dependent.
- Day camp or summer camp fees, even for camps centered around a sport or activity, qualify if the camp was selected to provide care while the parent or parents were at work. However, overnight camps do not qualify.
- Costs related to before- and after-school care for children under 13.
- Costs related to a nurse, home care provider, or other care provider for a disabled dependent.
Keep in mind that expenses related to schooling, tutoring, or overnight camps are not qualifying expenses.
Special circumstances
Since every family is different, the IRS has a series of exceptions to the rules in the qualification process. These exceptions allow a greater number of families to take advantage of the credit.
- For divorced or separated parents, the custodial parent (the parent with whom the child resides for the most nights out of the year) can claim the credit even if the other parent has the right to claim the child as a dependent due to the divorce or separation agreement.
- You can take the credit for the care of disabled adults even if you cannot claim them as a dependent because they have too much gross income or because you or your spouse can be claimed as a dependent by someone else.
- If your spouse is a disabled adult, the IRS waives the requirement for him to have earned income.
- If your spouse was a full-time student who attended college for at least five months out of the tax year, the IRS considers them to have earned income for each month that they were a full-time student.
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