For many working parents, paying for child care is simply a fact of life. But a portion of those expenses could actually qualify for a federal tax credit and lower your taxes. Here is everything you need to know to claim the Child and Dependent Care Tax Credit on your tax return.
How much is the Child and Dependent Care Credit worth?
If you have one dependent, the Child and Dependent Care Credit is worth 20 to 35% of $3,000 for qualified child care expenses. If you have two or more dependents, that amount is 20-35% of $6,000.
Note: Everyone’s tax filing situation is different, and the actual percentage you can claim will depend on your adjusted gross income (AGI).
If you’re filing back taxes for tax year 2021, the credit is worth up to 50% of qualifying expenses. The maximum amount is $8,000 for one child and $16,000 for two or more dependents. In 2021 the credit also begins to phase out if your AGI is greater than $125,000 and completely phases out for those with an AGI greater than $438,000.
Is the Child and Dependent Care Credit Refundable?
The Child and Dependent Care Credit is nonrefundable. This means that if your tax bill goes to $0, any access tax credit you have will not be added to your tax refund.
However, if you’re filing a prior year return for 2021, the credit for tax year 2021 was made refundable. Learn how refundable credits work.
What are the requirements to claim the Child and Dependent Care Credit?
To claim the Child and Dependent Care Credit on your individual tax return, you need to meet a few requirements. First, you must have incurred expenses for the care of a qualifying individual under 13 years old or a disabled dependent of any age.
Additionally, you and your spouse (if applicable) must have earned income from employment, self-employment, or certain disability payments. The care must have been provided so that you (and your spouse, if applicable) could work or look for work.
You’ll also need to identify the care provider and provide their name, address, and taxpayer identification number (usually their Social Security or Employer Identification numbers).
What is the minimum income required to get the child care credit?
The IRS says you must have earned annual income, but no minimum is required. Income can include wages, salaries, tips, and net earnings if you are self-employed.
There is an exception to this earned income requirement if your spouse was a full-time student or was disabled. Learn more about this exception to the rule.
What type of child care expenses can I claim for taxes?
A qualified expense for the Child and Dependent Care Credit refers to the types of expenses eligible for the credit. Generally, the criteria for a cost to qualify for the credit are as follows: the expenses must be essential for the child’s well-being and protection while you are working or looking for a job, and the expenses must be directly associated with child care.
Here are some examples of expenses that may qualify for the Child and Dependent Care Credit:
- Payments to a daycare center or nursery school
- Expenses paid to a babysitter or nanny
- Day camp or summer camp fees (but not overnight camp fees)
- Before or after-school care programs
- Expenses paid to a relative or family member who is not your dependent or your spouse
- Transportation costs directly related to child care (e.g., taking your child to a daycare center)
Examples that would not be considered qualifying expenses to claim this credit include:
- School tuition fees for kindergarten or higher grades
- Expenses for overnight camps or programs
- Extracurricular activity fees, such as sports lessons, music classes, or dance lessons, unless they are an integral part of a qualifying child care program
- Educational expenses beyond what is necessary for childcare purposes
- Payments made to a family member who is your spouse or who is your child under the age of 19
- Household expenses unrelated to child care, such as food, clothing, or general utilities
Remember – these expenses must be incurred for the care of a qualifying child under the age of 13 or a disabled dependent of any age, and they must allow you (and your spouse, if applicable) to work or look for work. It’s important to keep accurate records and retain receipts to support your Child and Dependent Care Credit claim.
Can I get the credit if I am a single parent?
Yes, single filers can claim the Child and Dependent Care Credit. It’s important to note that if you are co-parenting, only one of you may claim the child for tax purposes.
If you are married, you must file a joint return to take the credit. You won’t be eligible if you are married and filing separately.
Can I get a tax credit for daycare if I am a stay-at-home parent?
Probably not. To qualify for the credit, you (and your spouse if you are married) must be working, looking for work, or enrolled in school full time.
Does the Child and Dependent Care tax credit apply for private school expenses?
Probably not. School tuition for private kindergarten or higher is not considered “expenses for care” by the IRS, and would not qualify for the Child and Dependent Care Credit.
What if I have employer-provided dependent care?
If your employer provides child care services as part of an employee benefit program, you may still be eligible to claim the Child and Dependent Care Credit. However, there are some important considerations to keep in mind.
First, the value of employer-provided child care must be included in your income. This means the amount your employer contributes to the employer-provided program is added to your taxable income. This amount will be reported on your Form W-2 in box 10.
Second, you can only claim the Child and Dependent Care Credit for expenses exceeding your employer’s contribution to child care. In other words, you can claim the credit for out-of-pocket expenses you pay directly, which goes beyond any assistance your employer provides.
When filing with TaxSlayer, you’ll enter your W-2 information exactly as it appears on your form and enter your total eligible expenses on Form 2441 (regardless of if they were paid directly by you or the employer-provided benefit program). TaxSlayer will automatically calculate the amount qualifying for the credit and add the remaining (if applicable) to your total income.
How do I claim the Child and Dependent Care Credit?
You’ll have to report the name, address, and SSN or EIN of the care provider to claim the credit, so be sure to keep good records and hang on to your receipts.
To claim the Child and Dependent Care Credit, you’ll need to fill out Form 2441, Child and Dependent Care Expenses. TaxSlayer will provide step-by-step instructions to help you complete the form, which will be attached to your return when you submit it to the IRS.
