To be able to claim the credit for child and dependent care expenses, you must file Form 1040, 1040-SR, or 1040-NR, and meet the qualifying tests. You must have paid expenses for the care of a qualifying individual to enable you or your spouse to work or actively look for work. Both the taxpayer and their spouse, if filing a joint return, must reside in the United States for at least half of the year.
Who is a qualifying individual?
The IRS states that a qualifying individual for the child and dependent care credit is:
- Your dependent qualifying child who is under age 13 when the care is provided
- Your spouse who is physically or mentally unable to care for themselves and live with you for more than half the year
- An individual who is physically or mentally unable to care for themselves, lived with you for more than half the year, and either:
- Is your dependent or
- could have been your dependent except that he or she has gross income that equals or exceeds the gross income test amount, files a joint return, or you (or your spouse) could have been claimed as a dependent on another taxpayer's return.
How much is the credit?
For tax year 2022, the credit returns to it's previous requirements. There is a limit of $3,000 for one qualifying person, or $6,000 for two or more qualifying persons. The credit is no longer refundable.
For tax year 2021, the dependent care credit is a refundable credit. The maximum credit amount increased to 50% of the employment-related expenses. This equals $4,000 for one qualifying individual, or $8,000 for two or more qualifying individuals.
The amount of employer-provided dependent care benefits must be subtracted from the total expenses
The limit is $3,000 for one qualifying person, or $6,000 for two or more qualifying persons.
Is there an income limit to claim the credit?
There is adjusted gross income limit on the credit, but percentage of credit allowable ranges from 35% for up to $15,000 to 20% for $43,000 and higher.
The adjusted gross income level at which the credit percentage starts to phase out is raised to $125,000. Above $125,000, the 50% credit percentage goes down as income rises. It is entirely unavailable for any taxpayer with adjusted gross income over $438,000.