1. TurboTax /
  2. Tax Calculators & Tips /
  3. Tax Tips Guides & Videos /
  4. Family /
  5. The Ins and Outs of the Child and Dependent Care Tax Credit

The Ins and Outs of the Child and Dependent Care Tax Credit

Updated for Tax Year 2017


OVERVIEW

If you are paying someone to take care of your children or another person in your household while you work, you might be eligible for the child and dependent care credit. This credit "gives back" a portion of the money you spend on care, and can reduce your tax bill by hundreds or even thousands of dollars.


Benefits of the tax credit

child and dependent care credit

The child and dependent care credit is a tax break specifically for working people, says Matt Becker, a financial planner and founder of Mom and Dad Money. "Child care is expensive, and the cost gives many parents pause about whether it's worth returning to the workforce," Becker says. "But the child and dependent care credit can make it a little easier for parents to keep working without putting too much stress on their budget."

He cites two major benefits:

  • This is a tax credit, rather than a tax deduction. A deduction simply reduces the amount of income that you must pay tax on. A $1,000 deduction, for example, might reduce your tax bill by only $150 or $200 depending on your tax bracket. A tax credit, however, directly reduces your taxes, "dollar for dollar." A $1,000 tax credit cuts your tax bill by $1,000.
  • You can claim the credit regardless of your income. A lot of tax breaks have income limits and are not available at all to people with incomes above those limits. The child and dependent care credit does get smaller at higher incomes, but it doesn't disappear. "Those with a higher income may not get quite as much benefit, but they will still get something," Becker says.

Care you can claim

To qualify for the child and dependent care credit, you must have paid someone to care for one or more of the following people:

  • A child age 12 or younger at the end of the year whom you claim as a dependent on your tax return
  • Your spouse, if that person is unable to take care of himself or herself and has lived in your home for at least half the year
  • Any other person claimed as a dependent on your return, if that person can't take care of himself or herself and has lived in your home at least half the year

Limits on who can provide care

You can claim the credit for money you paid for care as long as the recipient was not one of the following people:

  • Your spouse
  • A parent of the child being cared for—for example, you couldn't claim the credit if you pay your ex-husband or ex-wife to care for the children you have together
  • Anyone listed as a dependent on your tax return
  • Your own child age 18 or younger, regardless of whether he or she is a dependent on your tax return—for example, you couldn't pay your 17-year-old child to look after an 8-year-old sibling and then claim the credit

Other requirements

There are several other tests you must meet to claim the credit:

  • You (and your spouse, if you're married) must have "earned income," meaning money earned from a job. Non-work income, such as investment profits, doesn't count.
  • You must have paid for the care so that you could work or look for work. Being a full-time student or a parent being unable to care for themself does count as "working" for the purposes of the credit even if you don’t receive any income for it.
  • If you are married, you must file a joint tax return.
  • You must provide the name, address and Taxpayer Identification Number (TIN) of the person who provided the care. The taxpayer ID number is either a Social Security number (SSN) or an Employer Identification Number (EIN). Ask your care provider for the number.

Figuring the credit

The size of your credit is based on how much you spend for child and dependent care, as well as your income. TurboTax guides you through the process of figuring your credit and fills in the proper form for you, but in general, it works like this:

  • Add up the total amount of your care expenses that qualify for the credit. The maximum amount of care expenses you're allowed to claim is $3,000 for one person, or $6,000 for one or more people.
  • If your employer gives you money to pay child care expenses, or if you have money withheld from your pay on a pre-tax basis, you must subtract this money received from your allowable expenses.
  • Compare your claimed expenses with your earned income and, if you're married, your spouse's earned income. Take the smallest of all these amounts. These are your "allowable expenses."
  • Your credit is a percentage of your allowable expenses. That percentage ranges from 20% to 35%. The higher your income, the smaller your percentage, and therefore the smaller your credit. But as Becker notes, there is no upper limit on income for claiming the credit.

Considering alternatives

Financial planner Mathew Dahlberg notes that while the child and dependent care credit is attractive, it may be possible to save even more money. If your employer provides a way to pay for child care with "pre-tax" dollars—that is, money that's taken out of your paycheck before taxes are calculated—the amount you save in taxes may be greater than what you get with the credit. This might be possible with a Flexible Spending Account or similar account. He advises checking with your employer's human resources department to explore your options.

And while you're at it, take time to learn about other tax breaks available to parents.

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

For only $59.99*
Start for Free

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

* Important Offer Details and Disclosures
  • TURBOTAX ONLINE/MOBILE

  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Absolute Zero $0 federal (forms 1040EZ/1040A) + $0 state limited time offer only available with TurboTax Free Edition; offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase. Special discount offers may not be valid for mobile in-app purchases.
  • QuickBooks Self-Employed Offer with TurboTax Self-Employed and TurboTax Live for Extension Filers: To receive your complimentary subscription to QuickBooks Self-Employed through 10/31/19, you must pay for your 2017 TurboTax Self-Employed or TurboTax Live return between 4/18/18 and 10/15/18 and sign-in and access your QuickBooks Self-Employed account via mobile app or at https://selfemployed.intuit.com/turbotax at least twice by 12/31/18. You will have the option of renewing your QuickBooks Self-Employed subscription by 10/31/19 for another year at the then-current subscription rate. You may cancel your subscription at any time from within the QuickBooks Self-Employed billing section. See QuickBooks.com for price comparison. Offer not valid for existing QuickBooks Self-Employed subscribers already on a paid subscription.
  • Pays for itself (TurboTax Self-Employed): Estimates based on deductible business expenses calculated at the self-employment tax income rate (15.3%) for tax year 2017. Actual results will vary based on your tax situation.
  • Anytime, anywhere: Internet access required; standard data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: A $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice.
  • TurboTax Help and Support: Access to a TurboTax specialist is included with TurboTax Deluxe, Premier, Self-Employed and TurboTax Live; not included with Free Edition (but is available as an upgrade). TurboTax specialists are available to provide general customer help and support using the TurboTax product. SmartLook on-screen help is available on a PC, laptop or the TurboTax mobile app. Service, area of expertise, experience levels, wait times, hours of operation and availability vary, and are subject to restriction and change without notice.
  • Tax Advice, Expert Review and TurboTax Live: Access to tax advice and Expert Review (the ability to have a Tax Expert review and/or sign your tax return) is included with TurboTax Live or as an upgrade from another version, and available through October 15, 2018. These services are provided only by credentialed CPAs, EAs or tax attorneys. State tax advice is free. Some tax topics or situations may not be included as part of this service, which shall be determined in the tax expert’s sole discretion. In the event your return is reviewed by a tax expert and requires a significant level of tax advice or actual preparation, the tax expert may be required to sign your return as the preparer at which point they will assume primary responsibility for the preparation of your return. Expert Review [and TurboTax Live] not available on the TurboTax mobile app or when using a web browser on your mobile phone. On-screen help is available on a PC, laptop or the TurboTax mobile app. Service, area of expertise, experience levels, wait times, hours of operation and availability vary, and are subject to restriction and change without notice.
  • Tax Return Access and My Docs features: Included with TurboTax Deluxe, Premier, Self-Employed, TurboTax Live or with PLUS benefits. Access to all tax-related documents we have on file for you is available through 10/31/2019. Terms and conditions may vary and are subject to change without notice.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2016 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.
  • CompleteCheck: Covered under the TurboTax accurate calculations and maximum refund guarantees.
  • #1 rated online tax prep provider: Based on independent comparison of the best online tax software by TopTenReviews.com March 13, 2017.
  • Get tips based on your tax and credit data to help get you to where you want to be: Tax and credit data accessed upon your consent.
  • TURBOTAX CD/DOWNLOAD SOFTWARE

  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for e-filing state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase. Prices subject to change without notice.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: A $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except TurboTax Business.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice via phone is included with Premier and Home & Business; fees apply for Basic and Deluxe customers. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2016 TurboTax products.
  • Data Import: Imports financial data from participating companies; may require a free Intuit online account. Quicken and QuickBooks import not available with TurboTax installed on a Mac. Imports from Quicken (2016 and higher) and QuickBooks Desktop (2012 and higher); both Windows only. Quicken import not available for TurboTax Business. Quicken products provided by Quicken Inc., Quicken import subject to change.