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 years 2022 and 2023 there is a limit of $3,000 for one qualifying person, or $6,000 for two or more qualifying persons. The credit is not refundable.
Your credit amount is dependent on your income and can be between 20 and 35% ($600 - $1,050) of the expenses. The program will calculate the credit for you when you enter your eligible dependents and expenses.
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?
No. However, the more you earn, the lower the percentage of employment-related expenses that are considered in determining the credit. Once your adjusted gross income is over $43,000, the maximum credit is 20% of your dependent care expenses ($3,000 X 20% = $600).
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.