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Key takeaways
- Claim care expenses for children under 13 or dependents who can’t care for themselves.
- To qualify, you and your spouse (if filing jointly) need earned income unless one is a full-time student or unable to care for themselves.
- The credit covers up to $3,000 in expenses for one dependent or $6,000 for two or more, with credit percentages ranging from 20% to 35%.
- Unlike the child tax credit, the child care tax credit is nonrefundable, meaning it can reduce your tax bill to zero but won’t provide extra cash back.
- Check if your employer offers pre-tax child care accounts or Flexible Spending Accounts (FSAs) for potential additional savings.
What is the child care tax credit?
The child care tax credit allows you to claim expenses for the care of children under 13. This care can include services from daycare centers, preschools, or in-home caregivers. For other dependents, such as a spouse or family member who can’t mentally or physically care for themselves, the dependent care tax credit provides additional support.
Both credits offer financial relief for caregiving expenses, making balancing work and family responsibilities easier.
It's important to remember that the child care tax credit isn’t the same as the child tax credit. We'll discuss that in more detail shortly to avoid any confusion.
How does the child care tax credit work?
To qualify for the child care tax credit, you and your spouse, if filing jointly, must have earned income for the year from wages, salaries, or self-employment. The only exceptions are if one of you is a full-time student or unable to care for yourself.
If you’re wondering how much this credit could be worth, here’s a basic rundown of what you can expect to receive, depending on your financial status.
How much you can claim for expenses depends on your adjusted gross income. Currently, you can claim up to $3,000 in care expenses for one dependent or $6,000 for two or more. If your income is under $15,000, you’re eligible for the highest credit at 35% of these expenses.
To break it down even further, 35% of $3,000 equals a $1,050 credit for one dependent. As income increases, the credit percentage gradually drops, with a minimum of 20% for incomes over $43,000. At this rate, at 20%, a $3,000 expense results in a $600 credit for one dependent.
How is this credit different than the child tax credit?
It’s easy to confuse these two tax credits, as they have similar names and are intended to ease the financial burden on working parents. However, they serve very different purposes.
The child care tax credit is nonrefundable. Yes, it can knock down your tax bill to zero, but don’t expect extra cash back if the credit is more than you owe.
The goal of the child tax credit is to balance the costs of raising children, which, these days, can be an eyebrow-raising amount. It’s partially refundable, meaning you could get some money back if you qualify. For 2024, this could be up to $2,000 per qualifying dependent child.
What are the benefits of the credit?
With the national average price of child care costs at $11,582 per year, according to Child Care Aware of America, the child care tax credit can offer some much-needed help for families. Here are a few standout benefits:
- It’s a tax credit, not a deduction. A tax credit directly reduces your tax bill by the full amount, whereas a tax deduction lowers the income that is taxed. For example, a $1,000 deduction may save you about $150 to $200, depending on your tax bracket. A $1,000 tax credit, instead, reduces your tax bill by the entire $1,000.
- No income limits to claim. Unlike many tax benefits that phase out for higher earners, you can apply for this credit regardless of your income. Bear in mind that the percentage of qualifying expenses decreases as income increases. In 2024, there’s no income ceiling for this credit. You only need to have at least $1 in earnings to qualify.
Further reading: Tax Credit vs Tax Deduction: Keys to a Lower Tax Bill
What are the eligibility requirements?
Before you start sorting through your receipts and original records, be sure you’ve checked all the boxes required to claim the child care tax credit—such as knowing who qualifies as a dependent and which care expenses count.
- Qualifying dependents
The person you’re paying to care for must fit one of these categories:
- Your child must be under 13 at the time of care.
- A spouse or dependent who can’t care for themselves due to physical or mental limitations and has lived with you for at least half the year.
- Other dependents who live with you for most of the year and rely on you for financial support.
There are rules and stipulations for children who turn 13 during the tax year, newborns, and separated or divorced individuals. For those details, see IRS Publication 503.
- Qualifying child care expenses
Expenses must be for the care of a child up to age 12, allowing you (and your spouse if you’re filing together) to work or actively look for employment. Eligible expenses include:
- Payments to daycare centers, nursery schools, preschools, and pre- and after-school care.
- Wages paid to a nanny, babysitter, or neighbor who cares for your child.
- Fees for day camps.
- Transportation that a caregiver uses to take your qualified dependent around (e.g., taxi and public transit).
There are some expenses that don’t qualify, such as:
- Kindergarten and above grade expenses
- Summer school
- Overnight camps
- Child support payments
- Tutor fees
- Qualifying dependent care expenses
For dependents who can’t care for themselves, eligible expenses include:
- Payments to caregivers (e.g., nurse or home health aide).
- Adult daycare program fees for a dependent or spouse who needs supervision.
- Medical or personal care costs related to a dependent’s disability.
How to claim the child and dependent care tax credit
When filing your tax return, all you need is one additional form—Form 2441: Child and Dependent Care Expenses—and you’ll be ready to claim it on your 1040.
When you fill out Form 2441, have the following details from your care provider ready:
- The care provider’s name and address
- Their taxpayer identification number (either a Social Security or Employer Identification Number)
Need help claiming tax credits and other savings?
If you want to keep more of your hard-earned income, Bench's tax experts make it simple. Our dedicated team and intuitive software streamline your bookkeeping, find every eligible deduction and credit you qualify for, and make sure your tax bill is as low as possible.
You can explore more ways to save with our resources tailored to self-employed and small business owners for tax credits and tax deductions that matter.
Other alternatives to consider
There are other alternatives to the child and dependent care credit that could lead to greater savings. Some employers let you pay for child care or daycare with “pre-tax” dollars, meaning the money is taken out of your paycheck before taxes apply. This cuts down your taxable income and potentially saves more than the credit alone.
A Flexible Spending Account (FSA) or similar account is another option. You can check with your HR department to see if these options are available and if they might be a better fit for you.
How Bench can help you uncover even more tax savings
When filing your tax return, finding suitable tax credits and deductions can make a big difference. We’ve gathered a list of the most common personal tax deductions and credits to take full advantage of your refund or trim down what you owe the IRS.
