Child and Dependent Care Credit

 

Editor’s note: This article has been updated to reflect updates to the Child and Dependent Care Credit from the American Rescue Plan Act of 2021. You’ll find those details near the bottom of this page.

If you’re a parent or caretaker of disabled dependents or spouses, listen up—you may qualify for a special tax credit used for claiming child care expenses. It’s called the Child and Dependent Care Credit, and with it, 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 how it’s recently changed here.

Requirements for the Child Care Tax Credit

To claim the Child and Dependent Care Credit, all of these must be true:

  1. You and your spouse usually file as married filing jointly. (See Filing exceptions below.)
  2. You provide the care so you (and your spouse, if married) can work or look for work.
  3. You have some earned income. If you’re married and living together, both you and your spouse must have earned income. However, one spouse might be disabled or a full-time student at least five months of the year. If that’s the case, IRS assigns one of these earned income amounts to that spouse:
    1. $250 per month for one child
    2. $500 per month for two or more children
  4. You and the person(s) being cared for live in the same home for more than half of the year.
  5. The person providing the care can’t be:
    1. Your spouse
    2. Parent of your qualifying child under age 13
    3. Person you can claim as a dependent
  6. If your child provides the care, he or she:
    1. Must be age 19 or older
    2. Can’t be your dependent

Even if you’re not married filing jointly, you might be able to claim the credit if both are true:

  • You paid more than half the cost of maintaining a household for the year. Both you and the qualifying person must have used the home as your main residence for more than half the tax year.
  • Your spouse wasn’t a member of the household during the last six months of the tax year.

Don’t leave money on the table

File your taxes to claim the Child and Dependent Care Tax Credit. Our tax pros can help you file in person or virtually, or you can file on your own online.

Qualifying persons for the Child Care Credit

To claim a Child Care Credit for qualified expenses, you must provide care for one or more qualifying persons. (See Qualified expenses section below)

Qualifying persons include:

  • A dependent who’s a qualifying child and under age 13 when you provide the care. Usually, you must be able to claim the child as a dependent to receive a 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 applies even if the noncustodial parent claims the child as a dependent.
  • Spouse or dependent of any age who’s both of these:
    • Physically or mentally incapable of self-care
    • Has the same main home as you do when you provide 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. The main purpose of the expenses must be well-being and protection.

Qualified expenses for the Child and Dependent Care Credit include:

  • Expenses for care provided outside the home. This applies if the qualifying person regularly spends at least eight hours each day in your home. If the qualifying person receives the care in a dependent-care center, 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.
  • Expenses for in-home care. This includes expenses for:
    • Cooking
    • Light housework related to the qualifying individual’s care
    • The care itself
  • 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?

These expenses don’t qualify for the Child and Dependent Care Credit:

  • Transportation costs to and from the childcare facility
  • Overnight camp expenses
  • Expenses for the education of a child in kindergarten or higher
  • Expenses for chauffeur or gardening services

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. This includes nursery school.

Calculating the Child and Dependent Care Credit until 2020

For tax years through 2020, the Dependent Care Credit is 20% to 35% of qualified expenses. The percentage depends on your adjusted gross income (AGI). The maximum amount of qualified expenses you’re allowed to calculate the credit is:

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

How much you can claim phases out depending on your income.

Calculating the Child and Dependent Care Credit in 2021

Thanks to the American Rescue Plan Act of 2021, the amounts you can claim for this credit have increased. Starting with your 2021 taxes, you’ll be able to claim up to:

  • $8,000 of expenses for a qualifying person
  • $16,000 of expenses for two or more qualifying people

The percent of the expenses you can claim has also increased. You can now claim:

  • 50% of expenses if your AGI is below $125,000
  • 50%-20%, if your AGI is $125,000-$185,000
  • 20%, if your AGI is $185,000-$400,000
  • 20%-0%, if your AGI is $400,000-$440,000
  • 0%, if your AGI is $440,000 or more

How to claim the Child Care Credit

Complete Form 2441: Child and Dependent Care Expenses and attach it to your Form 1040 to claim the Child and Dependent Care Credit.

Bonus content: Employer-provided benefits

Some employers provide childcare benefits like:

  • On-site care for their employees’ children
  • Direct payment for third-party care
  • Accounts earmarked for childcare expenses. Employees can put money from their salaries into these accounts.

If the value of the benefits is more than $5,000, your employer will report everything over $5,000 as taxable income. If the value is less than $5,000, it’s not taxable income.

For 2021 only, the maximum employer-provided dependent care benefit exclusion is increased from $5,000 to $10,500.

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 childcare or medical expenses.

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 claim the childcare credit. Subtract the Box 10 amount from the amount of the child and dependent care credit you can claim. 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 Care Credit.

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 five common tax credits.

More help with claiming the Child Care Tax Credit

If you think you qualify for the Child Care Tax Credit or other tax credits or deductions, get help! With many ways to file your taxes with H&R Block, we can work with you in a way that best suits your needs to help maximize your tax credits and deductions.

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