The child and dependent care credit

How it works

The credit counts care expenses up to this year's official dependent care expense cap one (not yet verified here; see the official source below) for one qualifying person and this year's official dependent care expense cap two (not yet verified here; see the official source below) for two or more. The percent applied starts at this year's official dependent care credit percent max (not yet verified here; see the official source below) for the lowest incomes and steps down to this year's official dependent care credit percent min (not yet verified here; see the official source below) as adjusted gross income rises. Both spouses must have earned income unless one is a full time student or unable to care for themselves. The care provider's name, address, and tax number go on the form, and overnight camps do not count. Money set aside in a dependent care flexible spending account at work, up to this year's official dependent care fsa limit (not yet verified here; see the official source below), is excluded from income instead, and the same dollars cannot be used for both. The credit is not refundable.

What it gives

It applies to a wide range of care, including summer day camp and a relative who is paid and reports the income.

The expense cap is per family, so a second child raises it.

It can be combined with a dependent care account at work, as long as the same dollars are not counted twice.

What it costs, or where the catch is

It only cancels tax owed, so a family with no income tax receives nothing from it.

The percent falls as income rises, so most middle and upper income families get the lowest percent.

A provider who refuses to give a tax number makes the claim hard to support.

A worked example

Ingrid and Theo both work and pay $9,000 a year for their 4 year old's daycare. Only the capped amount for one child counts, and at their income the credit percent is the lowest step. If the cap were $3,000 and the percent 20, the credit would be $600, which is $3,000 times 0.20. Theo's job offers a dependent care account, so they run part of the cost through it the next year and the excluded dollars come off their taxable pay instead.

Where it goes wrong

The frequent miss is paying for care with pretax dollars from a work account and then also claiming the credit on the same dollars, which the form disallows.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS Publication 503, Child and Dependent Care Expenses. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.