Parents who paid for care so they could work are often entitled to relief on some of that cost, and often do not claim it because of a paperwork problem rather than an eligibility one.
The claim requires the provider's details. Where care was arranged informally, paid in cash, or provided by a relative, those details are frequently unavailable by the time anybody asks for them.
This covers who qualifies, what kinds of cost count, how the relief is calculated, what has to be reported about the provider, and how an employer-provided benefit interacts with the claim.
If you paid someone to care for a child, disabled spouse, or other qualifying dependent so you could work or look for work, you may be able to claim the Child and Dependent Care Credit. IRS Form 2441 is the form you use to calculate and claim this credit on your individual tax return.
Who Qualifies
Qualifying Persons
- A qualifying child under age 13 whom you can claim as a dependent
- Your spouse who was physically or mentally incapable of self-care and lived with you for more than half the year
- Any other person who was physically or mentally incapable of self-care, lived with you for more than half the year, and either was your dependent or would have been your dependent except that their gross income was too high or they filed a joint return
Qualifying Taxpayer
You must have earned income (wages, salaries, self-employment income) to claim the credit. Married couples: both spouses must have earned income, OR one spouse must be a full-time student or incapable of self-care. There is a deemed earned income of $250/month (one qualifying person) or $500/month (two or more) for the non-earning spouse in such cases.
The claim usually fails on the provider's details rather than on eligibility. People pay in cash, or through an informal arrangement, and then cannot supply what the form asks for. Ask the provider for their details at the start of the arrangement, not in filing season.
Ankit Sarawagi, CPA, CA, MBA · LinkedInQualifying Expenses
- Day care centers, nursery schools, and after-school programs (but not kindergarten tuition itself)
- In-home babysitters or nannies
- Day camps (but not overnight camps)
- Au pairs
- Payments to relatives (except your spouse, the child's parent, or anyone you can claim as a dependent)
Expenses are NOT qualified if they are for overnight camp, tutoring, or schooling for children in kindergarten or above.
Dollar Limits on Qualifying Expenses
| Number of Qualifying Persons | Maximum Qualifying Expenses |
|---|---|
| One qualifying person | $3,000 |
| Two or more qualifying persons | $6,000 |
These limits are reduced by any dependent care benefits your employer provides (reported in Box 10 of your W-2). For example, if you have one child, the limit is $3,000. If your employer paid $2,500 of dependent care FSA benefits, your remaining qualifying expense base is only $500.
The Credit Percentage
The credit percentage ranges from 20% to 35%, depending on your adjusted gross income (AGI):
| AGI | Credit Percentage |
|---|---|
| $15,000 or less | 35% |
| $15,001 to $17,000 | 34% |
| $17,001 to $19,000 | 33% |
| $19,001 to $21,000 | 32% |
| $21,001 to $23,000 | 31% |
| $23,001 to $25,000 | 30% |
| $25,001 to $27,000 | 29% |
| $27,001 to $29,000 | 28% |
| $29,001 to $31,000 | 27% |
| $31,001 to $33,000 | 26% |
| $33,001 to $35,000 | 25% |
| $35,001 to $37,000 | 24% |
| $37,001 to $39,000 | 23% |
| $39,001 to $41,000 | 22% |
| $41,001 to $43,000 | 21% |
| $43,001 and above | 20% |
Provider Information Required
On Form 2441, Part I, you must report for each care provider:
- Name of the care provider
- Address of the care provider
- Taxpayer Identification Number (TIN), either SSN for an individual or EIN for a business
- Amount paid to this provider
If the provider refuses to give their TIN, you can still claim the credit but must report due diligence by showing you requested the TIN. The IRS may follow up with the provider.
Employer-Provided Dependent Care Benefits (FSA)
If your employer offers a Dependent Care FSA and you contribute to it, those dollars are excluded from your income. However, they reduce the expense base for the credit. The combined FSA exclusion + credit cannot exceed your qualifying expenses up to the $3,000/$6,000 limit.
Pro Tip: For most families, a Dependent Care FSA saves more in taxes than the credit alone, because FSA contributions are excluded from both income tax AND payroll taxes. Use the FSA first, then claim the credit on any remaining eligible expenses.
Part III, Dependent Care Benefits
Part III of Form 2441 is for taxpayers who received employer-provided dependent care benefits. It reconciles the exclusion and ensures any excess benefits are added back to income.
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Frequently Asked Questions
Is the child and dependent care credit refundable?
No. As of current law, it is a non-refundable credit. If the credit exceeds your tax liability, you do not get the excess back as a refund (unlike the EITC).
Can I claim the credit for a summer day camp?
Yes, day camp qualifies. Overnight camp does not.
Can I claim expenses paid to my relative?
Only if the relative is not your spouse, not the child's parent, and not someone you claim as a dependent.
What if I am self-employed?
You can still claim the credit. Your net self-employment income counts as earned income. You cannot also deduct the same expenses on Schedule C.
Can both parents claim the credit if they are divorced?
No. Only the custodial parent (the one with whom the child lived for more nights) may claim the credit, and only if they are also claiming the dependency exemption.
Written by
Ankit Sarawagi, CPA, CA, MBA
Ankit leads the finance team at Profitjets, where he has worked with 500+ businesses across the US on bookkeeping, tax and CFO-level strategy. He writes about the habits that keep small business books accurate all year. Connect on LinkedIn
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