The Child and Dependent Care Credit is a tax credit you may be able to claim for child care expenses you paid for your dependent child under 13 (no age limit for a disabled dependent) so that you (and your spouse, if filing a joint return) can work or actively look for work.
The amount of the credit is a percentage of the child care expenses up to $3,000 per child with a max of $6,000 for two or more children that you paid to a daycare provider for the care of your dependent child under 13 or another dependent.
Since the credit was established in 1976, the Child and Dependent Care Credit has largely gone unchanged, but under the American Rescue Plan Act of 2021, huge changes were made expanding the credit that will be effective on your 2021 taxes only (the taxes you likely filed in 2022).
This tax credit is not to be confused with the Child Tax Credit that was also changed under the American Rescue Plan Act of 2021.
You may pay for child care and wonder, “What are the changes to the Child and Dependent Care Credit?”, “What Expenses Qualify?”, and more. Don’t worry, we have you covered with answers to your burning questions to help you save on your taxes.
What are the changes to the Child and Dependent Care Credit?
Tax Year 2021
For the 2021 tax year only, the Child and Dependent Care Credit expanded in several ways under the American Rescue Plan. The percentage and the child care expense thresholds changed, so you can get a credit up to 50% of $8,000 ($4,000) in child care expenses for one child under 13, an incapacitated spouse or parent, or another dependent so that you can work and up to 50% of $16,000 in expenses ($8,000) for families with two or more dependents. For the 2021 tax year, the credit was refundable if you lived in the U.S. for more than half the year.
The 2021 Child and Dependent Care Credit amount begins to phase out when the taxpayer’s adjusted gross income (AGI) reaches over $125,000. Eligible families with an AGI of $125,000 or less will get a credit worth 50% of their qualifying child care expenses. The credit percentage decreases for families with an AGI over $125,000, and the credit is completely phased out for adjusted gross income of more than $438,000.
Tax Year 2022
The 2021 expansion and changes to the Child and Dependent Care Credit expenses under the American Rescue Plan Act of 2021 expired.
The Child and Dependent Care Credit reverted to is pre-2021 provisions and could get you up to 35% of $3,000 ($1,050) of child care expenses for a dependent child under 13, an incapacitated spouse or parent, or another dependent so that you can work or look for work. For families with two or more dependents, the credit was up to 35% of $6,000 in expenses ($2,100). The credit also reduces at incomes $15,000.
How to qualify for the Child and Dependent Care Credit?
In order to qualify for the child and dependent care credit, you must:
- Pay expenses for a qualifying individual (a child or dependent) to enable you or your spouse to work or actively look for a job .
- Have earned income. Earned income is money you earned from a job. However, income from an investment or dividend does not qualify as earned income.
- Provide the care provider’s information on your tax return. This includes name, address, and either their social security number (SSN) or an Employer Identification Number (EIN). In order to claim the expenses you pay your provider, the provider can not be your spouse, a parent of the dependent child, another dependent claimed on your tax return, or your child who is age 18 or younger (even if they are not claimed as a dependent on your tax return).
Note: If you are married, you and your spouse must file as married filing jointly to qualify for this credit. Generally, you may not take this credit if your filing status is married filing separately. TurboTax will ask you simple questions to help determine the best filing status for you.
Who is a qualifying individual for the Child and Dependent Care Credit?
A qualifying individual for the child and dependent care credit generally is:
- Your dependent qualifying child who is age 12 or younger (no age limit if incapacitated) at the time the child care is provided,
- Your spouse who was physically or mentally incapable of self-care and lived with you for more than half of the year
- An individual who was physically or mentally incapable of self-care, lived with you for more than half of the year, and either was your dependent.
Frequently Asked Questions about Child and Dependent Care Credit
Question: I send my child to summer camp or sports camp so I can work. Do I qualify for the Child and Dependent Care Credit?
Answer: Yes, because the expenses you paid to send your child to summer camp or a sports camp while you work are considered qualified expenses for the Child and Dependent Care Credit.
Question: My child attends an after school program, does that qualify for the Child and Dependent Care Credit?
Answer: Yes, If you pay for programs before and after school so you can work, then the expenses qualify for the Child and Dependent Care Credit.
Question: I pay for bus transportation to and from school for my child, does that count toward the Child and Dependent Care credit?
Answer: No, money spent on transportation to and from school or after school care or camp does not count toward the Child and Dependent Care credit.
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