The Child and Dependent Care Tax Credit is a tax break for those who have paid expenses for day care, preschool, or any form of caregiving. It is often confused with the Child Tax Credit but is distinct in its purpose of helping those who work or are searching for work with caregiving expenses. The credit is worth 20% to 35% of up to $3,000 or $6,000, depending on the number of dependents, as reported by TurboTax on February 18, 2023.
To qualify, individuals must have earned income and have paid for care expenses to work or seek employment. The credit is nonrefundable, and the percentage of the credit you can receive is dependent on your adjusted gross income. According to a report by Nerd Wallet on February 16, 2023, there is no income restriction, but the maximum credit is $1,050 for one dependent and $2,100 for two or more dependents in 2022.
The person for whom care expenses are being paid must be claimed as a dependent on the tax return, and there are special rules for those who are turning 13, newborns, or separated or divorced individuals. The IRS has specific rules on what expenses qualify towards the credit, including nursery school, pre- and after-school care, day camp, and transportation for qualifying dependents.
The IRS has strict rules for qualifying care providers and requires their name, address, and taxpayer identification number to claim a credit. Married couples must file jointly to claim the credit, but the primary custodial parent can claim it if they’re legally separated, not living together, or divorced.
The requirements for the Child and Dependent Care Tax Credit can be found in IRS Publication 503, and individuals should ensure they meet all requirements before claiming the credit.