What Is the Child and Dependent Care Credit?

If you’ve got kiddos at home, you’ve probably discovered that paying for childcare is no joke! The same can be said of hiring in-home help for a disabled or elderly family member.

If you find yourself in that season of life, money can be tight. But there might be some good news for you when it comes to tax season. It’s called the child and dependent care tax credit and we’ve got all the juicy details. (Or not so juicy. Because, you know, it’s taxes.)

What Is the Child and Dependent Care Credit?

The child and dependent care credit is a credit designed to help people pay for the care of their dependents, whether children or adults, so they can work or look for work.

So what’s a tax credit? And is it the same as a tax deduction? Well, a tax credit cuts your tax bill dollar for dollar. The more credits you claim, the less you’ll owe the IRS—and you might get money back. Let’s say you owe $2,000 in taxes. If you claim a $500 credit, it slashes your bill to $1,500. Not too shabby! A tax deduction, on the other hand, will reduce your taxable income instead of directly cutting down your tax bill. So a $500 tax deduction would save you $110 if you’re in the 22% tax bracket.

How Does the Child and Dependent Care Credit Work?

For the 2022 tax year, you can claim this credit when you pay for childcare (or dependent care) so you can either work or look for work. That’s pretty straightforward. But it gets more complicated (of course), so hang with us.

You can claim this credit on dependent-care expenses of up to $3,000 for one qualifying dependent and $6,000 if you had two or more qualifying dependents. But you don’t get the whole $3,000 or $6,000. You get a percentage of it depending on your income—and it maxes out at 35%.¹

How to Figure Out Your Child and Dependent Care Credit

If Your Adjusted Gross Income Is . . .	Then Your Percentage Is . . .
Under $15,000	35%
$15,000–17,000	34%
$17,000–19,000	33%
$19,000–21,000	32%
$21,000–23,000	31%
$23,000–25,000	30%
$25,000–27,000	29%
$27,000–29,000	28%
$29,000–31,000	27%
$31,000–33,000	26%
$33,000–35,000	25%
$35,000–37,000	24%
$37,000–39,000	23%
$39,000–41,000	22%
$41,000–43,000	21%
$43,000 and above	20%

That’s a lot of numbers to decode, so let’s look at an example:

Let’s say you have two children under 17 years old living with you year-round. You and your spouse also moved in your mother-in-law eight months ago and hired a memory care assistant to stay with her so you and your spouse could work full time. Whew! It’s been a busy year full of changes for your household. Take a breath.

You paid $5,600 in childcare and $8,400 for the memory care assistant, totaling $14,000 for the year. Remember that you can claim this credit on care-related expenses of up to $6,000 for two or more qualifying dependents.

So if you and your spouse file jointly and make over $43,000 combined, the most you could be credited is 20% of that $6,000, which is $1,200. If you make under $43,000 combined, you could be credited up to 35% of the $6,000, which would be $2,100, depending on where your income falls on the sliding scale (See the chart above).

Don’t settle for tax software with hidden fees or agendas. Use one that’s on your side—Ramsey SmartTax.

The other thing to keep in mind is that this tax credit is nonrefundable. In other words, the best you can hope for is a $0 tax bill—you don’t get a refund if there’s any left over. So if you have a $100 tax bill but you’re credited with $500 from the child and dependent care credit, your tax bill goes down to zero (nice!) . . . but don’t expect a $400 check signed by Uncle Sam to grace your mailbox.²

Who Is Eligible for the Child and Dependent Care Credit?

To figure out whether you and your dependent meet the qualifications for this credit, see if you meet the following tests:³

Work-Related Expense Test

You must have paid for care for your dependent so you (and your spouse if married) could work or look for work.

These payments must be made to someone who you (and your spouse) can’t claim as a dependent. In other words, paying your 15-year-old daughter to babysit your toddler every day after school doesn’t qualify. Unfortunately, paying your spouse or the parent of your qualifying child doesn’t qualify either.

But let’s say your kid is 19 or older, going to school part-time, and therefore can’t be claimed as a dependent. Paying them to babysit your child so you can work would qualify because they’re no longer your dependent. Sweet!

Qualifying Person Test

Your child or dependent who received care must meet these qualifications:

• If they’re a child, they were filed as your dependent and under age 13 when the care was provided.
• If they’re your spouse, they were not mentally or physically able to care for themselves and lived with you for more than half the year.
• If they’re another person, they were not mentally or physically able to care for themselves and lived with you for more than half the year and were your dependent (or would have been your dependent if they had not received a gross income of $4,400 or more).

Earned Income Test

You (and your spouse, if married) must have earned some income during the year. This includes wages, salaries, tips, other taxable employee compensation, net earnings from self-employment, and any disability pay you report as wages.

Tax Return Test

If your filing status is married filing separately, you can’t claim the child and dependent care credit (except in some rare cases). But if you’re filing status is anything else—single, head of household, qualifying surviving spouse, or married filing jointly—you’re good to go.

Provider Identification Test

You must give the name, address, and tax ID number of the person or organization that cared for your dependent.

What Expenses Qualify for the Child and Dependent Care Credit?

The IRS is pretty clear about this—only expenses that are work-related qualify for this credit. These are expenses that 1) allow you (and your spouse if filing jointly) to work or look for work, and 2) are for a qualifying person’s care.

So how does Uncle Sam define “work”? Well, it can be full-time or part-time work, at home or outside your home, for others or your own business. If you’re big on volunteering, good for you! Unfortunately, according to the IRS, volunteering isn’t the same as working.

That’s the “work” side of the equation. Now let’s dig into what qualifies as “care” expenses.

First, the good news! Payments for nursery school, preschool, or any similar programs for kids below the level of kindergarten qualify as “care” expenses! So does before- or after-school care for children in kindergarten or a higher grade. However, any expenses to attend kindergarten or a higher grade don’t count as expenses for care. Neither does summer school, overnight camps or tutoring programs, so make sure you don’t include these costs when calculating your credit amount.

Let’s talk about paying for a dependent’s care outside your home. If you’re paying for a loved one’s stay at a dependent care center (memory assistance living, assisted care home, etc.), you can count those expenses as long as the center meets all state and local regulations. As far as kids go, the cost of sending your child to a childcare center or day camp throughout the summer would be considered a work-related expense, but not an overnight camp.

If you pay for household services that allow you to work or look for work, they can only be counted toward the child and dependent care credit if they are at least partly for the care of a dependent. So if you’re paying for a housekeeper, cook, or babysitter who helps care or cook for your dependent, those expenses could count if all the other qualifications we’ve gone over are met.⁴

How Do I Claim the Child and Dependent Care Credit?

Claiming this credit isn’t too complicated. There’s only one extra tax form you’ll have to fill out along with your tax return. All you have to do is complete Form 2441, Child and Dependent Care Expenses, attach it to your Form 1040 and voila—you’re done!

Is the Child and Dependent Care Credit the Same as the Child Tax Credit?

Before you fill out that Form 2441, just keep in mind that the child and dependent care credit and the child tax credit are not the same.

The child tax credit is a credit that lowers your tax bill based on how many children you have. For the 2022 tax year, you can get a maximum credit of $2,000 for each qualifying child under the age of 17 to help with the general costs of raising kids. Nice!

The child and dependent care credit is a completely different credit that gives you a break on the costs of care for children or other dependents (like elderly parents). It’s much more specific about the kinds of expenses that qualify and your reasoning behind those expenses—they have to be expenses you paid for the care of a child or adult dependent so you can work or look for work.

Get Started on Your Taxes Today

Taxes can be tricky, especially when it comes to claiming tax credits and deductions. But you don’t have to tackle all those forms and paperwork alone. If you want an expert to guide you through the filing process, reach out to one of our RamseyTrusted tax pros today.

If you have a relatively simple return and want to try filing on your own, check out Ramsey SmartTax and get started on your taxes right away!