How to Claim the Child and Dependent Care Tax Credit

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The Child and Dependent Care Tax Credit can reduce your tax liability based on eligible care expenses for children or dependents. The idea behind the credit is that you and/or your spouse can either work or look for work without having to bear the full burden of caring for your children or dependents.

The amount you can receive depends on a combination of how much you spend on care and your adjusted gross income.

Who Qualifies for the Credit?

To qualify for the credit, you must have earned income. If you live solely off investment income, such as dividends, for example, you won’t qualify. You must also have a qualifying dependent.

As per the IRS, a “qualifying individual” must meet the following specifications:

• A child under 13 who depends on you for support
• A spouse who is mentally or physically incapable of self-care and who lives with you for more than half of the year
• An individual who is mentally or physically incapable of self-care, lived with you for more than half of the year, and also was either your dependent
• Someone who could have been dependent except for the following reasons:
  • They received gross income of $4,700 or more
  • They filed a joint return
  • You (or your spouse, if filing jointly) could have been claimed as a dependent on someone else’s 2023 tax return

There are some other qualifying criteria as well:

• You must have incurred the actual child or dependent care expenses yourself while you were looking for work or so that you could look for work.
• If you’re married, you must file a joint tax return.
• You must also provide the Taxpayer ID (TIN), name and address of the person who provided the care.

How Much Can You Claim?

Your adjusted gross income and the amount you spend on expenses will determine how much the Child and Dependent Care Tax Credit is worth to you.

• Add up the amount you spent on qualifying expenses. Note that you must subtract any amounts that your employer paid for your childcare expenses or if you had any money withheld from your pay on a pre-tax basis.
• Take the smaller of your claimed expenses and your earned income, including your spouse’s earned income. This amount is the total of your allowable expenses.
• The percentage that you can claim ranges from 20% to 35%, depending on your income. For example, incomes from $1 to $15,000 can claim the full 35% credit, while those with incomes of over $43,000 can only claim a 20% credit.
• The maximum amount you can claim for tax year 2024 is $3,000 for one person, or $6,000 for two or more people.

For tax year 2021, during the pandemic, the credit was increased significantly. However, in the post-pandemic world, those changes no longer remain.

What Expenses Qualify for the Credit?

The credit only applies to specific expenses directly related to the care of the qualifying person, although related household expenses are also reimbursable.

Common qualifying expenses include:

• Daycare, in-home care and after-school programs
• Expenses for children enrolled in school below the level of kindergarten do qualify as expenses for care
• Transportation costs provided by a caregiver for a qualifying individual also qualify
• Meals and lodging you provide for a caregiver would also qualify

However, it’s important to note that IRS regulations are fairly strict as to what qualifies.

These expenses don’t qualify:

• Chauffer
• Food, education and lodging for the dependent
• Child support

As the distinctions can sometimes be difficult to parse out, it may be worthwhile to consult a tax advisor.

How To Claim the Child and Dependent Care Tax Credit

Gather receipts, provider information and your income. Then:

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.
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. 

Tips for Maximizing the Credit

The Child and Dependent Care Credit can be a bit confusing to claim if you’re not familiar with it. Here are some tips on how to maximize the credit and avoid making mistakes, including failing to take the maximum allowable credit:

• Maintain accurate records. Not only are records important to verify key information and determine how much credit you’re entitled to, they are invaluable in case you are ever audited. Receipts and invoices could become critical to substantiate your credit.
• Understand expenses that are eligible for the credit. Review the IRS guidance regarding qualifying expenses so that you can claim costs that are valid and skip any that would be deemed ineligible by the IRS.
• Consider speaking with a tax advisor. If you’re at all confused about claiming the credit, it can be worthwhile to visit a professional for guidance.
• Plan ahead. Knowing which expenses are eligible or ineligible, what the maximum credit is and how your income affects the size of your credit can help ensure you get the highest benefit possible. 
• Coordinate with employer-sponsored benefits like a Dependent Care FSA. This can ensure that you get the largest possible benefit from the federal tax credit while still covering any additional expenses with your employer-sponsored benefits.

Final Take

People who qualify for this credit can fill out Form 2441 and claim up to $3,000 for a dependent. Sometimes it can be difficult to figure out if your expenses qualify. Make sure to talk to a tax professional to get the biggest refund.

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