If you have a dependent with daycare expenses, you may be eligible for the Child and Dependent Care Credit (CDCC). To claim the CDCC, you must meet a series of qualifications.
What are the Dependent Care Credit requirements?
You can generally claim the CDCC if you meet the following rules:
- You have earned income for the year.
- You have a child or dependent under the age of 13 OR a child or dependent who is physically or mentally disabled and unable to care for themselves.
- You are filing as Married Filing Joint, Head of Household, Single, or Qualifying Widow(er) with a Dependent Child.
- You paid for child or dependent care services so you could work or look for a job.
- The child or dependent care expenses were not paid to a spouse, dependent, or the child’s parent.
- You are the primary caretaker or the custodial parent of the child or dependent.
What is the Dependent Care Credit?
The CDCC is a nonrefundable credit that lowers your tax liability but will not affect your return if you do not owe any income tax.
The credit is limited to $3,000 for one child or $6,000 for two or more children. This credit amount can be reduced based on the number represented in box 10 of your W-2 for dependent care benefits. This money is considered pre-tax so it can not be figured into the credit.
In order to claim the credit, you will need the following information:
- The Care Facilities EIN or the Care Takers SSN/ITIN
- The Providers Name
- The Providers Address
- The Amount Paid to the Provider
If you determine you are eligible for the CDCC, you can enter the information in the program by taking the following path:
- Federal Section
- Deductions - Select My Forms
- Credits Menu
- Child Care Credit Form 2441
Changes for tax year 2021
For Tax Year 2021 only. This change to the credit has expired as of 2022.
For tax year 2021, the American Rescue Plan will change the following:
- The child and dependent credit will be a refundable credit for tax year 2021.
- The amount of eligible expenses increases from $3,000 to $8,000 for one child and from $6,000 to $16,000 for more than one child.
- The percentage of expenses eligible for the credit increase from 35% to 50%
- The phaseout income amounts increase from $15,000 to $125,000 capping at 20% when AGI reaches $400,000.
For more information on the CDCC, click here.