DEFINITION of 'Child And Dependent Care Credit'

A non-refundable tax credit for unreimbursed childcare expenses paid by working taxpayers. The Child and Dependent Care Credit is designed to encourage taxpayers to pay childcare expenses so that they can remain gainfully employed.

The Child and Dependent Care Credit is claimed on Form 2441 for taxpayers that are filing Form 1040, or Schedule 2 for Form 1040A.

BREAKING DOWN 'Child And Dependent Care Credit'

The taxpayer, the care provider, the dependent/dependents must all meet certain requirements in order for the taxpayer to qualify for the credit. The Child and Dependent Care Credit is limited to a range of 20% to 35% of $3,000 for one qualifying child or dependent under age 13 or $6,000 for two or more qualifying persons, depending on the taxpayer's Adjusted Gross Income.

The Child And Dependent Care Credit is aimed at providing tax breaks for many parents who claim responsibility for the cost of childcare, including daycare center fees, babysitters, non-overnight summer camps, and other care providers, who either look after qualifying children under the age of 13 or, or tend to disabled dependents of any age. The cost of a cook, housekeeper, maid, or cleaning person, who provides ancillary care for a child or dependent, is also considered a childcare expense. And although the credit is geared toward working parents and/or guardians, taxpayers who were either full-time students or were unemployed for part of the year may also qualify for the credit.

The Qualifying Terms

Individuals must satisfy the following criteria, in order to qualify for the Child And Dependent Care Credit:

  • The childcare service must have been utilized in order to free up a parent to either seek employment or maintain an existing job.
  • Individuals must be the custodial parent or main caretaker of the child or dependent in question.
  • An individual’s filing status must be single, head of household, qualifying widow or widower with a qualifying child, or married filing jointly.
  • Individuals (and spouses, if they are married and filing jointly) must have earned an income for the tax year.
  • Your child or dependent must be under 13 of age, or must be disabled and physically or mentally incapable of self care.
  • The childcare provider may not be the child’s parent or the parent's spouse.
  • For divorced or separated parents, the custodial parent (with whom the child resides for the most nights out of the year) can claim the credit even if the other parent has the right to claim the child as a dependent, due to the divorce or separation agreement.

For more information, see IRS instructions for Form 2441.

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