The Ins and Outs of the Child and Dependent Care Credit
Do you pay for child care so you can work or actively look for work? The Child and Dependent Care Credit can help you recover a portion of the cost of that child care. Not sure if you're eligible for the Child and Dependent Care Credit? Learn more about this tax credit, who qualifies for it, and how much you can save on your tax bill.
Key Takeaways
- If you paid someone to care for a child who was under age 13 when the care was provided and whom you claim as a dependent on your tax return, you may qualify for the Child and Dependent Care Credit.
- You also may qualify for the credit if you paid someone to care for your spouse or 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.
- To claim the credit, you (and your spouse, if you're married) must have income earned from a job and you must have paid for the care so that you could work or look for work.
- You can claim from 20% to 35% of your care expenses up to a maximum of $3,000 for one person, or $6,000 for two or more people (tax year 2024).
Benefits of the tax credit
The Child and Dependent Care Credit is a tax break specifically for working people to help offset the costs associated with caring for a child or dependent with disabilities.
There are two major benefits of the credit:
- This is a tax credit, rather than a tax deduction. A tax 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.
- A lot of tax breaks have income limits and are not available at all to people with incomes above those limits. In most years you can claim the credit regardless of your income. The Child and Dependent Care Credit does get smaller at higher incomes, but it doesn't disappear - except for 2021. In 2021, the credit is unavailable for any taxpayer with adjusted gross income over $438,000.
Care you can claim
To qualify for the child and dependent care credit, you must have paid someone, such as a daycare provider, to care for one or more of the following people:
- a child under age 13 when the care was provided 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 person you paid 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-spouse 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 they are 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 unable to care for themselves 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.
- If your employer gives you money to pay childcare expenses, or if you have money withheld from your pay on a pre-tax basis, you must subtract this money 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.
- The higher your income, the smaller your percentage, and therefore the smaller your credit. There is no upper limit on income for claiming the credit for tax years except for 2021.
For tax year 2024, the maximum amount of care expenses you're allowed to claim is $3,000 for one person, or $6,000 for two or more people. The percentage of your qualified expenses that you can claim ranges from 20% to 35%.
TurboTax Tip:
“If you put money in a dependent care flexible spending account through work, you must reduce eligible child and dependent care expenses by the same amount. For example, if you put the maximum allowed amount of $5,000 in an FSA, and you spent $6,000 for the care of two children, you must reduce your eligible childcare expenses by $5,000, leaving $1,000 to calculate your tax credit.” – Kelly Wallace, CPA, Homedale, Idaho
Considering alternatives
While the child and dependent care credit is attractive, you may save even more money with other options. For example, if your employer provides a way to pay for childcare 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 may be possible with a Flexible Spending Account or similar account.
- Consider 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.
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