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.
Qualifying tests
To be able to claim the credit for child and dependent care expenses, you must meet all the following tests.
- Qualifying Person Test. The care must be for one or more qualifying persons who are identified on Form 2441.
- Earned Income Test. You (and your spouse if filing jointly) must have earned income during the year.
- Work-Related Expense Test. You must pay child and dependent care expenses so you (and your spouse if filing jointly) can work or look for work.
- You must make payments for child and dependent care to someone you (and your spouse) can't claim as a dependent. If you make payments to your child, he or she can't be your dependent and must be age 19 or older by the end of the year. You can't make payments to:
- Your spouse, or
- The parent of your qualifying person if your qualifying person is your child and under age 13.
- Joint Return Test. Your filing status may be single, head of household, or qualifying surviving spouse with dependent child. If you are married, you must file a joint return, unless an exception applies to you.
- Provider Identification Test. You must identify the care provider on your tax return.
- If you exclude or deduct dependent care benefits provided by a dependent care benefit plan, the total amount you exclude or deduct must be less than the dollar limit for qualifying expenses
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?
2022-2023
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.
2021
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
Pre 2021
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?
2022-2023
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).
2021
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.