Can You Claim the Child and Dependent Care Tax Credit?

You may be eligible for a tax credit of up to 35%

This illustration answers the question, Do I qualify for the child-/dependent-care tax credit? and includes "You must claim child as a dependent on a tax return," "Child or adult in your care must live with you at least half the year," "Child must be either younger than age 13, or unable to care for themselves because of a disability," "You must pay more than half the costs of maintaining your home," "Professional care for your child or adult dependent must be intended to allow you to work, look for work, or attend school full time," and "If married, your spouse must also be working, looking for work, or in school - or else disabled and thus not able to provide care."

Joshua Seong @ The Balance 2020 

Paying for child care or adult dependent care is one of the steepest monthly expenses many families face. But without care, parents may not be able to leave home to earn a living or go to school. 

The Internal Revenue Service’s (IRS) child and dependent care tax credit provides a tax credit of up to 35% of the expenses you pay someone to take care of your children or adult dependents, making it somewhat easier to afford.

However, various rules and exceptions that make the tax credit a bit more complicated than it seems.

How Much Is the Child and Dependent Care Credit Worth?

As of the 2020 tax year—the return you’d file in 2021—the child and dependent care tax credit is 20%-35% of day care expenses of up to $3,000 for one dependent or $6,000 for two or more dependents. Any children whose care you claim must have been under the age of 13 at the time the care was provided.

The credit begins at 35% of your adjusted gross income (AGI) up to $15,000, then decreases incrementally by 1% as your income goes up until $43,000, at which point your tax credit is 20%. 

How to Qualify for the Child and Dependent Care Credit

You must have a dependent child or an adult dependent who can’t be left alone while you work, look for work, or go to school full-time because the person can’t take care of themselves. You must also have earned income during the tax year from a job or self-employment.

Your spouse must also be working, looking for work, or attending school if you're married, and therefore be unable to stay home and provide care. Your spouse must have earned income as well, but an exception exists if your spouse is disabled and incapable of caring for another person. You can't claim this credit if you file married-filing-separately except under certain rare circumstances. 

You may be able to get the child and dependent care credit even if your employer subsidizes the cost of or provides care.

Rules for Your Qualifying Dependents

Your child must have been younger than age 13 when the care was provided, or, if they were older than 13, they must have been physically or mentally incapable of self-care. You can claim adult day care expenses for a dependent age 13 or older or for your spouse if they’re physically or mentally unable to care for themselves. 

If you are married but living apart from your spouse, you can claim child care or adult day care expenses for someone who lives with you at least half the year. To qualify, you must pay more than half the costs of maintaining your home.

Sometimes divorced or separated parents agree to allow the noncustodial parent to claim their child as a dependent on their tax return. If you don’t claim the child as a dependent and he or she lived with you the greatest number of nights during the year compared to the noncustodial parent and you paid for child care, you can claim the credit.

Adult dependents qualify if they lived with you for more than half the year and were not “physically or mentally able to care for himself or herself.”

The IRS defines someone who can’t physically or mentally take care of themselves as “persons who can’t dress, clean or feed themselves because of physical or mental problems” and those who require constant attention because they are at risk of injuring themselves.

Rules for Qualifying Day Care Providers

If you make child-care payments to a dependent who takes care of your children, you cannot claim those expenses. For example, you can’t claim payments you make to your dependent daughter to take care of her brother. However, the tax code allows you to claim the expenses if you don’t claim your daughter as a dependent and she’s 19 or older by the end of the year. 

No matter your spouse’s age, the IRS won’t allow you to claim a tax credit for money you pay to them to take care of a qualifying child. Also, you can’t claim payments you make if the person providing care is a relative or dependent and the child they’re taking care of is yours and under the age of 13. 

Summer day camps are qualifying providers if they specialize in one activity (computers or soccer, for example) but overnight camps don't qualify.

Key Takeaways

  • The percentage of your child and dependent care tax credit ranges from 20% to 35% of what you spent on day care, up to those $3,000 or $6,000 limits.
  • Your applicable percentage depends on your AGI.
  • There's no limit on how much you can earn and still qualify, but the percentage does decrease in 1% increments as your earnings increase.
  • In most cases, the credit applies to care for dependent children under 13 and adults who cannot take care of themselves.