Child and Dependent Care Tax Credit: Who Qualifies and How Much You Can Claim

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Child care is one of the biggest expenses many families face. In most U.S. states, the cost of day care now exceeds public college tuition — and in 17 states, it’s even higher than the average rent. To help offset some of these costs, the Internal Revenue Service (IRS) offers a child and dependent care tax credit for eligible families.

Child and Dependent Care Credit: At a Glance  

• You can claim the child and dependent care tax credit on Form 2441 along with Form 1040 or 1040-SR when you file your taxes.
• The credit is non-refundable, which means it can only reduce the amount of taxes you owe.
• The maximum credit is roughly $1,050 for one qualifying individual and $2,100 for two or more qualifying individuals.
• You can refer to Form W-10, issued by the caregiver, to find the correct name, address, taxpayer identification code and the amount paid for the tax year.
• The credit applies to daycare, childcare, in-home care and respite care for children under the age of 13 or any qualifying dependent who requires assistance with activities of daily living.

How Much Is the Child and Dependent Care Credit?

The IRS allows taxpayers to claim the child and dependent care credit on up to $3,000 in qualifying expenses for one person or $6,000 for two or more qualifying dependents.

The credit equals 20% to 35% for those expenses, depending on your adjusted gross income (AGI).

• Taxpayers with AGI of $15,000 or less qualify for the maximum 35% rate
• The rate gradually decreases to 20% for AGI above $43,000

That means the maximum credit is about $1,050 for one qualifying person or $2,100 for two or more, depending on income.

Here are a few examples:

• If you have one child in daycare and an AGI of $15,000, you can claim a credit of up to $1,050.
• If you have two children and an AGI of $15,000, the credit can be up to $2,100.
• If your AGI is $44,000 and you have two children, the credit is 20% of $6,000, or $1,200.

Who Qualifies for the Credit

• Taxpayer or spouse with earned income
• Qualifying care expenses paid so the taxpayer or spouse could work, look for work or attend school
• Filing status of single, head of household, qualifying surviving spouse or married filing jointly

Who Counts as a Qualifying Person

• Child under age 13
• Disabled spouse or other dependent unable to care for themselves
• Lived with the taxpayer for more than half the year

Care Providers Who Don’t Qualify for the Credit

The IRS has strict rules regarding who can or cannot be your care provider to claim the tax credit. You cannot hire the following individuals to provide care:

• Your dependent, or your spouse’s dependent, if filing jointly
• Your child under age 19 at the end of the year, including stepchildren or foster children, even if not claimed as a dependent
• Your spouse
• The parent of your qualifying child if the child is under age 13

What Expenses Qualify — and What Doesn’t

How Employer Benefits Affect the Credit

If your employer provides childcare as a benefit for employees, you can still claim the child and dependent care tax credit. But you must deduct the cost of care covered by your employer.

Likewise, if you paid for childcare through an employer-sponsored dependent care flexible savings account (FSA), you must subtract that amount from your total qualifying expenses.

In other words, if your employer covers all childcare costs as an employee benefit, you can’t claim the credit. But if, after payments through your dependent care FSA, you still have $3,000 in expenses for one dependent or $6,000 for two, you can claim the credit.

How To Claim the Child and Dependent Care Tax Credit

Gather receipts, provider information and your income. Then follow these steps:

1. Use Form 2441.
2. For Part I, include information about your care provider, such as their name, address and tax ID or Social Security number (SSN).
3. For Part II, enter your expenses and follow the instructions to compute your credit. Take the information from line 11, which is your final credit for child and dependent care expenses, and transfer it to line 2 of Schedule 3 of your Form 1040.
4. Part III is for dependent care benefits. After entering the appropriate information about any benefits you received, you can determine if any of those benefits are deductible or taxable. 

Documents You’ll Need  

You may be required to share documentation that your dependent or spouse cannot care for themselves, along with the nature and duration of their disability. When filing your taxes, have these documents handy:

• Form 2441
• Form 1040 or 1040-SR
• SSN or tax ID number for qualifying dependents
• Form W-10, showing the care provider’s name, address and taxpayer identification number (TIN)
• Receipts or statements showing costs and duration of care

Common Mistakes That Reduce or Disqualify the Credit

• Using an ineligible care provider: Make sure the caregiver meets the IRS rules.
• Missing or incomplete provider information: You’ll need the provider’s full name, address and TIN.
• Not keeping proper receipts: Save documentation showing the amount paid and dates of care.
• Double-dipping with a dependent care FSA: Expenses paid with pre-tax FSA dollars can’t be used to claim the credit.
• Failing to coordinate benefits: Work with your employer or benefits department to maximize both FSA savings and the tax credit.

Child and Dependent Care Tax Credit vs. Other Ways To Pay for Care

The tax credit helps, but it won’t cover most costs. Childcare can exceed $20,000 per year in some states, meaning the credit offsets only a portion of what families pay. Here are some points to keep in mind:

• Dependent care FSAs often provide the biggest savings. If your employer offers a dependent care FSA, paying expenses with pre-tax dollars can save up to about 30%, depending on your tax bracket.
• You can use both — but not on the same dollars. To maximize the credit, pay the first $3,000 in care expenses — or $6,000 if you have two dependents– out of pocket to claim the tax credit, then use FSA funds for the remaining costs.
• Know the contribution limits. Dependent care FSAs max out at $7,500 for married filing jointly, single filers or heads of household, and $3,750 for married filing separately.
• Combining strategies can reduce costs significantly. Using both the tax credit and an FSA can meaningfully lower childcare or eldercare expenses.
• Out-of-pocket should be a last resort. If you or your spouse works or attends school, keep receipts and file properly to claim the credit whenever possible.

Key Takeaways

• The tax credit is non-refundable, which means it can reduce the taxes you owe, but not increase your tax refund.
• You can claim 35% of dependent care expenses up to $3,000 for one dependent or $6,000 for two dependents.
• The maximum refund is $2,100 for taxpayers with an AGI of $15,000 or less and two dependents.

John Csiszar contributed to the reporting for this article.

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