Child and Dependent Care Credit: What it is and who qualifies

If you’re a parent or caretaker of young children, disabled dependents, or a disabled spouse, listen up — you may qualify for a special tax credit used for claiming child care and dependent care expenses. It’s called the Child and Dependent Care Tax Credit (CDCC), and you might be able to get back some of the money you spent on these expenses by claiming it.

Learn more about this valuable tax credit and its nuances here.

How much is the Child and Dependent Care Credit worth?

Currently, the Child and Dependent Care Credit ranges from 20% to 35% of qualified expenses. The percentage depends on your adjusted gross income (AGI). The maximum amount of qualified expenses for the credit is:

• $3,000 for one qualifying person
• $6,000 for two or more qualifying persons

The credit percentage phases down depending on your AGI. We’ll discuss how to calculate the amount of the credit you may receive later on in this post.

Requirements for claiming the Child Care Tax Credit/Dependent Care Credit

Depending on your relationship to the person who qualifies you to claim the credit, you might think of it as the “Child Care Tax Credit” or the “Dependent Care Tax Credit,” but it may be helpful to know the official name is the “Child and Dependent Care Credit.”

Names aside, here’s what you need to know. To claim this valuable tax credit, the following should all be true:

1. If you are married, you and your spouse usually file as Married Filing Jointly (MFJ). See exceptions in the qualifying persons section below — you may also claim the credit if your filing status is Single, Head of Household (HOH), or Qualifying Surviving Spouse.
2. You pay for the care so you (and your spouse, if married) can work or look for work.
3. You have earned income. If you’re married and living together, both you and your spouse must have earned income. However, if one spouse is disabled or a full-time student for at least five months during the year, the IRS assigns to that spouse:
   • The higher of $250 or actual income for the month for one qualifying person, or
   • The higher of $500 or actual income for the month for two or more qualifying persons
4. You and the person(s) being cared for live in the same household for more than half of the year.
5. The person providing the care can’t be:
   • Your spouse
     • Parent of your qualifying child
     • Person you can claim as a dependent
6. If your child provides the care, they:
   • Must be age 19 or older
   • Can’t be your dependent

If you’re married but not filing jointly with your spouse, you can claim the credit if you’re “considered unmarried,” meaning:

• You paid more than half the cost of maintaining a household for the year. Both you and the qualifying child or dependent must have lived in the same home as your main residence for more than half the tax year.
• Your spouse didn’t live in the same household during the last six months of the tax year — not even a single night

Who qualifies for the Child and Dependent Care Credit?

To claim a Child and Dependent Care Credit for qualified expenses, you must pay for care for one or more qualifying people. (See qualified expenses section below.)

Qualifying persons include:

• A dependent who’s a qualifying child and under age 13 when you pay for the care (This age limit does not apply for a child who is disabled). Usually, you must be able to claim the child as a dependent to receive the credit. However, an exception applies for children of divorced or separated parents. In those situations, the child is the qualifying child of the custodial parent for purposes of this credit. This may apply even if the noncustodial parent claims the child as a dependent.
• Spouse or dependent of any age who meets both of these criteria:
  • Is physically or mentally incapable of self-care
  • Has the same main home as you do when you pay for the care

Qualified expenses for the Child and Dependent Care Credit

Qualified child- or dependent-care expenses are those you incur while you work (or look for work). They should be related to well-being and protection, including:

• Expenses for care provided outside of your home. If the qualifying person receives the care in a dependent-care center, such as a daycare facility, the center must comply with all relevant state and local laws. A dependent-care center is one that cares for more than six people for a fee. Day camp qualifies.
• Expenses for in-home care, such as:
  • Cooking
  • Light housework related to the qualifying individual’s care
  • Payments made to the care provider for providing care
• If the care provider is a household employee, gross wages paid for qualified services, plus your portion of:
  • Social Security
  • Medicare
  • Federal unemployment taxes
  • Other payroll taxes paid on the wages
  • Meals and lodging for the employee providing the services

What expenses don’t qualify for the Child and Dependent Care Credit?

Unfortunately, these expenses don’t qualify for the Child and Dependent Care Credit:

• Transportation costs to and from the child care facility
• Overnight camp expenses (day camp expenses may qualify)
• Expenses for the education of a child in kindergarten or higher

The cost of before- or after-school programs might qualify if the program is for the care of the child. Education costs below kindergarten qualify if you can’t separate those costs from the cost of care. (A good example is nursery school.)

How to claim the Child and Dependent Care Credit

Luckily, to claim this credit you only need to fill out one extra tax form when completing your tax return. Complete Form 2441: Child and Dependent Care Expenses and attach it to your Form 1040 to claim the Child and Dependent Care Credit.

When you claim the CDCC on your tax return, you will be required to list information about the care provider, including their name, address, and taxpayer identification number.

Child and Dependent Care Tax Credit vs. Child Tax Credit

Both of these federal credits support working families with young children, and with similar names it’s no surprise they’re often confused. The Child and Dependent Care Tax Credit is aimed at supporting families to offset the costs associated with child care or care for a dependent with a disability. It is a credit that is provided to qualifying taxpayers who pay for child or dependent care expenses. The Child Tax Credit (CTC) is a separate credit that helps families reduce the overall cost of raising a child.

Another difference is that the Child and Dependent Care Credit is nonrefundable, meaning that the credit can never exceed your tax liability. However, with the Child Tax Credit, you may receive part of the credit even if it exceeds your tax liability. The credit is partly refundable up to $1,700 for 2024.

Employer-provided benefits in addition to the CDCC

Some employers provide child care benefits, which you may qualify for in addition to the Child and Dependent Care Credit. Such employer-provided benefits may include:

• On-site care for employees’ children
• Direct payment to a third-party care provider
• Accounts earmarked for child care expenses (See explanation of Flexible Spending Accounts below.)

Employer-provided benefits are excluded from income up to $5,000 ($2,500 if married filing separately and not considered unmarried). If your benefits exceed this amount, your employer will report the excess over $5,000 as taxable income in Box 1 of your W-2. If the value is less than $5,000, it’s excluded from income. For example, Samantha’s employer provides on-site child care during the summer, valued at $3,500. Because this amount is below $5,000, it is excluded from her income and won’t be reported on Form W-2.

Flexible Spending Accounts

Some employers offer Section 125 plans. These are also called cafeteria plans or Flexible Spending Accounts (FSAs). They allow employees to reduce their salaries for one or more nontaxable benefits. You can use common flexible spending accounts to pay child care or medical expenses.

Child and Dependent Care Credit: Completing your tax return

Your W-2, Box 10 will show the amount of child and dependent care benefits your employer provided. You can’t use expenses paid or reimbursed with these benefits to also claim the Child and Dependent Care Credit. Start with the maximum creditable expense allowed ($3,000 for one qualifying person or $6,000 for two or more qualifying persons) and subtract the Box 10 amount from the expense amount. Then you’ll calculate the credit with the remaining expenses.

When your W-2 shows dependent care benefits, you must complete Form 2441 (Form 1040), Part III. This applies even if you’re not claiming a Child and Dependent Care Credit.

Calculating the amount you can claim for the CDCC

To calculate your potential credit amount, you’ll need this information:

• Total qualifying care expenses
• Number of qualifying persons
• Your earned income for the year (and your spouse’s, if you’re married)
• Your adjusted gross income—this determines the percentage to multiply your qualifying expenses by to get the amount of your credit.

Suppose you spent $6,000 on daycare for two qualifying persons and received $5,000 in dependent care benefits from your employer — including either direct reimbursements or contributions to an FSA. That leaves just $1,000 to calculate the Child and Dependent Care Credit, assuming that your AGI (or your spouse’s, if you’re married) is more than $1,000. Here’s the math to calculate the credit:

1. Your child care costs for two qualifying children: $6,000
2. Maximum allowable expenses for two qualifying persons: $6,000
3. Subtract dependent care benefits: – $5,000
4. Total care expenses that qualify for CDCC: $1,000
5. Your AGI: $24,000
6. Corresponding percentage based on AGI: 30%
7. Final CDCC amount: $1,000 x 0.30 = $300

On the other hand, if you have only one qualifying person and the same expenses, you would not be eligible to claim a dependent care credit because the amount of your dependent care benefits exceeds the allowable expenses limit for one qualifying person.

1. Your child care costs: $6,000
2. Maximum allowable expenses for one qualifying person: $3,000
3. Subtract dependent care benefits: – $5,000
4. Reduced dollar limit on expenses for CDCC: $0

Can you take a child care tax deduction?

No, there are no tax deductions available for child care for individuals—just a credit. However, you might qualify for other credits or deductions. To learn more, read about the top common tax credits.

Claim the Child and Dependent Care Tax Credit and other credits with H&R Block

If you think you qualify for the Child and Dependent Care Tax Credit or other tax credits like the Earned Income Tax Credit, get help! Whether you use a tax pro at one of our H&R Block office locations or file online, we can work with you in a way that best suits your needs to help maximize your tax refund.