Child and Dependent Care Tax Credit: Overview, Requirements, and Eligible Expenses
The Child and Dependent Care Tax Credit helps taxpayers offset the cost of care for qualifying dependents. This credit applies to a percentage of eligible care expenses but is nonrefundable, meaning it can reduce tax liability to zero but does not generate a refund.
For tax year 2024, the credit covers 20% to 35% of qualifying expenses, depending on income. The maximum allowable expenses are $3,000 for one qualifying person and $6,000 for two or more. If an employer provides a flexible spending account (FSA) or dependent care assistance, reimbursements must be deducted from qualifying expenses when calculating the credit. Taxpayers must complete Form 2441 (Child and Dependent Care Expenses) and attach it to their return to claim the credit.
Eligibility Requirements
To qualify for the credit, taxpayers must meet five key tests:
1. Qualifying Person Test
2. Earned Income Test
3. Work-Related Expense Test
4. Joint Return Test
5. Provider Identification Test
1. Qualifying Person Test - A qualifying person includes:
A dependent child under age 13 whom the taxpayer claims on their return.
A spouse who is physically or mentally disabled and unable to care for themselves.
Any other dependent who is physically or mentally disabled and claimed on the taxpayer’s return.
2. Earned Income Test
To qualify, the taxpayer (and spouse, if filing jointly) must have earned income during the year. A spouse who is a full-time student or disabled is considered to have earned income of $250 per month for one qualifying person or $500 per month for two or more. Earned income for the credit cannot exceed the taxpayer’s total earned income for the year.
3. Work-Related Expense Test
Eligible expenses must be necessary for the taxpayer (and spouse, if applicable) to work or actively seek employment—unless they are a full-time student or disabled. Qualifying expenses include:
Preschool and after-school care for children in kindergarten or above.
Adult daycare for a disabled spouse or dependent of any age.
Transportation costs if provided by the care provider.
Fees and deposits for a preschool or daycare program.
Household services necessary for the qualifying person’s care.
Expenses that do not qualify:
Private school tuition for kindergarten and above.
Tutoring, summer school, and overnight camps.
Transportation costs not provided by the care provider.
Expenses for food, clothing, or entertainment outside the care provider’s program.
Payments made to the taxpayer’s own child under 19 or another dependent on the tax return (e.g., a grandmother who provides care for younger children).
4. Joint Return Test
Married couples must file a joint return to claim the credit. However, a separated spouse may qualify if they meet the head of household filing status. In the case of divorced or separated parents, only the custodial parent (the one with whom the child lives the majority of the year) can claim the credit.
5. Provider Identification Test
Taxpayers must provide the name, address, and taxpayer identification number (TIN) of the care provider. If an individual or organization refuses to supply their TIN, the taxpayer should provide whatever information is available and document the refusal.
The Child and Dependent Care Tax Credit helps working parents and caregivers offset the cost of necessary care. By reducing tax liability, it provides financial relief to those balancing work and caregiving responsibilities. For additional details, refer to IRS Publication 503 (Child and Dependent Care Expenses) or consult a tax professional for personalized advice.
IRS Publication 503
