Key Takeaways
- The Child and Dependent Care credit lets parents who work pay less in taxes when they spend money on daycare, babysitters, or other care services.
- Families can claim between 20% and 35% of their care costs, up to $3,000 for one child or $6,000 for two or more children.
- Both parents must work or look for work, and you need to show that you paid for care so you could earn money or find a job.
Paying for child care can really add up. If you work and pay someone to watch your kids or care for a dependent, you might be able to get money back on your taxes. The Child and Dependent Care credit helps working parents lower their tax bills.
Keep reading to learn about this tax credit, who qualifies, and how it works.
- What is the Child and Dependent Care credit?
- What is the difference between the Child and Dependent Care credit and Child tax credit?
- Who is eligible to claim the Child and Dependent Care credit?
- How much is the Child and Dependent Care credit worth?
- What are the requirements for a qualifying child or dependent?
- What expenses qualify for the Child and Dependent Care credit?
- What expenses don’t qualify for the Child and Dependent Care credit?
- Is claiming the Child and Dependent Care credit worth it?
- How to claim the Child and Dependent Care credit
- Tips for claiming and filing the Child and Dependent Care credit
What is the Child and Dependent Care credit?
The Child and Dependent Care credit is a tax break specifically for working people to help offset the costs associated with caring for a child or dependent with disabilities. Essentially, the Child Care tax credit gives money back to parents who work and pay for care.
If you’re a working parent and pay for the following, you may be able to claim this significant tax credit on this year’s tax return:
- Daycare
- Before-school programs
- After-school programs
- In-home care
- Other child or dependent care
When you file your taxes, you tell the IRS how much you spent on care. Then, they lower the amount of taxes you owe.
It’s important to know that this is a credit, not a child care tax deduction. A deduction lowers your taxable income, but a credit directly reduces the taxes you owe, which usually saves you more money.
What is the difference between the Child and Dependent Care credit and Child Tax credit?
These two credits work very differently. The Child and Dependent Care credit pays you back money you spent on care while you worked. You have to show proof that you paid for a daycare or babysitter.
The Child Tax credit is different. You get this money just for having kids under 17 who live with you. You don’t need to prove you paid for care. This particular credit begins to phase out at higher income levels, specifically when your adjusted gross income goes over $200,000 for single filers or $400,000 for married couples filing jointly.
You can claim both credits on the same tax return if you qualify for each one.
Who is eligible to claim the Child and Dependent Care credit?
The IRS lets you claim the Child and Dependent Care credit if you paid a business or someone else to take care of your child or other qualifying person. You and your spouse (if you’re married) must have been working or looking for work when you paid for the care.
You might be able to claim the child care tax credit if:
- You paid for care so you could work. The money you spent needs to be for care that happened while you or your spouse were at work or looking for a job.
- You lived in the United States most of the year. You or your spouse need to have lived in the U.S. for more than half the year to qualify. Military families stationed overseas have different rules that still might let them claim the credit.
How much is the Child and Dependent Care credit worth?
The amount you get back depends on how much you spent on care and how much money you make. Those who qualify can claim 20% to 35% of their child care costs. If you make less money, you get a higher percentage back.
You can claim up to $3,000 for one child or $6,000 for two or more kids. Lower-income families can claim up to 35% of their costs. As your income goes up, that percentage goes down to 20%. For example, if you have two kids and spent $8,000 on daycare, you can only use $6,000 to figure out your credit. If you qualify for 25%, you’d get $1,500 back.
What are the requirements for a qualifying child or dependent?
Your child needed to have been under 13 years old when you paid for their care. Once kids turn 13, they don’t count for this credit anymore. Dependents with disabilities count, too. If your dependent can’t take care of themselves, they can be of any age.
In general, the child or dependent needs to live in your home for more than half the year, and you must claim them on your tax return to get the credit.
What expenses qualify for the Child and Dependent Care credit?
The IRS is pretty clear about what you can count as care expenses. These costs need to be for care that happened so you could work. Common expenses that qualify for the child care credit are:
- Daycare and preschool. Any money you paid to a daycare center or preschool program counts, including part-time and full-time care.
- Before and after-school programs. Programs that keep kids safe while you finish your workday count.
- Summer day camps. Regular day camps during summer break qualify. Overnight camps don’t count.
- Babysitters and nannies. Money paid to babysitters or in-home nannies counts. It helps to keep good records of what you paid them.
What expenses don’t qualify for the Child and Dependent Care credit?
Some care costs don’t count for the Child and Dependent Care credit, such as:
- Overnight camps. If your kids sleep at camp, you can’t claim those costs. The IRS only covers day care.
- School tuition for kindergarten and up. Regular school costs don’t qualify. Preschool is different and does count.
- Care paid to certain relatives. You can’t claim money paid to your spouse, your child who’s under 19, or someone you claim as a dependent.
Is claiming the Child and Dependent Care credit worth it?
For most families, yes. The Child and Dependent Care credit can help offset costs if you owe taxes, or it can increase your refund. A family spending $6,000 on care could get $1,200 back. That can cover a car payment or help build your savings.
The paperwork isn’t too hard, either. You need your care provider’s information and records of what you paid. If you’re already gathering documents for your taxes, adding this information doesn’t take much extra time.
How to claim the Child and Dependent Care credit
Follow these steps to claim the Child and Dependent Care credit:
- Get Form 2441. This is the form you use to claim the credit. Most tax programs or professionals ask you questions and fill out the form for you.
- Gather your care provider information. You need the name, address, and tax ID number for every person or place you paid for care. Get this information before you file.
- Add up your expenses. Count all the money you paid for qualifying care during the year. Remember, the limits are $3,000 for one child or $6,000 for two or more.
- Complete and file. Form 2441 walks you through the math. You’ll enter your expenses and information about who you paid. The form figures out your credit amount. Then you transfer that number to your main tax form and file your return.
Tips for claiming and filing the Child and Dependent Care credit
Here are some helpful tips to make claiming this credit easier and ensure you get the most money back:
- Keep good records all year. Save payment records as you go. Many parents keep a folder just for care expenses.
- Ask your provider for their information early. Get your daycare’s EIN or your babysitter’s Social Security Number before January.
- Know about tax write-offs you can combine. You might qualify for other credits and deductions, too.
- File on time. Learn how to prepare for tax season so you’re ready when the time comes.
- Get help if you need it. Professional tax preparation services can make sure you claim everything correctly and get the most money back.
Taxes are simple with Sun Loan
Child and dependent care costs are expensive, so it’s important to take advantage of the Child and Dependent Care tax credit. By following the advice and steps laid out in this article, you know what you need and what to do to file a claim for this tax credit, which can greatly reduce your tax bill this year.
As always, Sun Loan is here to help you with your taxes year-round! We offer a variety of tax-filing options, including online, in-person, or local drop-off. Our tax experts have more than 20 years of experience and know how to get you the largest refund possible. Drop by one of our local branches to speak with a tax expert today!
