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.
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. (link for qualifying dependent)
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
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.