The Child and Dependent Care Credit is a federal tax credit that helps working parents and caregivers offset the costs of caring for children under the age of 13 or other dependents who are unable to care for themselves. This credit is available to taxpayers who incur expenses for daycare, babysitters, after-school programs, or similar services while they are working or looking for work.
The amount of the credit is based on the taxpayer’s earned income and the eligible expenses incurred. The IRS allows taxpayers to claim up to 35% of qualifying expenses, up to a maximum of:
- $3,000 for one qualifying individual, or
- $6,000 for two or more qualifying individuals.
To claim the credit, taxpayers must file Form 2441 with their tax return and provide the Social Security Number (SSN) or Employer Identification Number (EIN) of the care provider. Only expenses that are necessary for the taxpayer to work or actively seek employment qualify for the credit.
In tax years where more generous tax relief is available (e.g., pandemic-related adjustments), the percentage of expenses that can be claimed may increase. Additionally, this credit is nonrefundable, meaning it can reduce tax liability but cannot result in a refund if the credit exceeds the amount of tax owed.
The Child and Dependent Care Credit is an important tool for working families, helping to alleviate the financial burden of childcare and dependent care expenses.