Qualifying for the Child or Dependent Care Tax Credit

Child and dependent care costs can take a big bite out of your budget. To help ease the load, the IRS offers a tax credit for qualifying care expenses incurred while you (or your spouse, if filing jointly) are working or looking for work.

You may be able to claim up to $3,000 in expenses for one qualifying individual or $6,000 for two or more. The amount of the credit is a percentage of qualifying care expenses and is based on your adjusted gross income. However, it can’t exceed the lower of your or your spouse’s earned income.

Who qualifies for the credit?

You can claim the credit if care was provided to:

• A child under age 13
• A spouse who is physically or mentally incapable of self-care and lived with you more than half the year
• Another individual who is incapable of self-care and who either:
  • Is your dependent
  • Would have been your dependent except for one of the following reasons:
    • They earned $5,050 or more
    • They filed a joint return
    • You (or your spouse, if filing jointly) could have been claimed as a dependent by someone else

Two important exceptions

First, if you’re married and file separately, you generally can’t claim the credit. However, an exception applies for certain taxpayers who live apart from their spouse. A tax professional can help you determine if you qualify.

Additionally, if you received employer-provided dependent care benefits and excluded them from your income, you’ll need to subtract those amounts from your eligible expenses. The maximum exclusion is typically $5,000.

What counts as qualifying care?

Care can be provided in your home or elsewhere, but it must be primarily for the benefit of the qualifying individual. There are some restrictions, however:

• The caregiver can’t be your spouse, your child under age 19, the child’s other parent (if the child is under age 13) or anyone you or your spouse claim as a dependent on your taxes.
• You can include costs for nursery school, preschool or similar care below kindergarten level even if the program includes meals or educational activities. For example, if you send your 3-year-old to preschool while you work, the total cost (including lunch and incidental learning activities) qualifies.
• Tuition for kindergarten and higher grades does not qualify. However, before- or after-school care for school-aged children can count.

Filing the right way

To claim the credit, you must list all care providers on your tax return. And here’s a key detail: If you pay a caregiver in your home, you may be considered a household employer, which means you’re responsible for employment taxes.

The penalties for failing to adhere to these rules can add up quickly. That’s why it’s smart to work with a tax professional — especially one with experience handling household employment reporting.