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The child and dependent care tax credit is a percentage, based on your adjusted gross income (AGI), of the amount of work-related childcare expenses you paid during the year. When calculating the dependent care tax credit, you may use up to $3,000 of dependent care expenses if you have one qualifying dependent and up to $6,000 if you have two or more dependents.
The credit can range from 20 percent to 35 percent of qualifying expenses paid during the year, with the exact percentage based on your adjusted gross income (AGI). The AGI amount at which the credit percentage begins to decrease is $15,000. Generally, the higher your dependent care expenses and the lower your income, the higher the tax credit.
You may take the dependent care credit even if you don’t itemize your deductions, but you cannot claim the dependent care credit if you are married filing separately. To claim the credit, you must file Form 1040 or Form 1040A. Taxpayers who file Form 1040 must complete and attach Form 2441. Form 1040A filers must complete Schedule 2. You cannot use Form 1040EZ to claim the dependent care credit.
On your tax form, you must include the name and Social Security number of your childcare provider or the taxpayer identification number of the childcare center. Keep in mind that if you pay someone to come to your home to provide the care, you may be a household employer, which could require you to pay employment taxes.
Expenses reimbursed through an employer-sponsored dependent care flexible spending account cannot be claimed for the child and dependent care credit. For example, if you or your spouse use a flexible spending account at work to pay for $4,000 of the $6,000 you pay to care for your two children, you can only count the non-reimbursed amount of $2,000 toward the dependent care tax credit.
The childcare credit is not refundable. This means that the tax credit may reduce your regular tax liability to zero, but not below zero, where a refund would result.