Every Childcare Tax Credit You Can Claim: A Complete Guide

Federal Child and Dependent Care Tax Credit (CDCTC)

The CDCTC is the primary federal tax benefit for childcare expenses. It allows families to claim a credit of 20-35% of qualifying expenses, with the percentage decreasing as income rises. For most middle-income families, the credit rate is 20%, which translates to a maximum credit of $600 for one child or $1,200 for two or more children.

To qualify, you must have earned income, and the care must be for a child under age 13 (or a dependent who is physically or mentally incapable of self-care). Both spouses must work or be actively looking for work if filing jointly. The care provider cannot be your spouse, the child's parent, or your dependent.

The maximum qualifying expenses are $3,000 for one qualifying individual or $6,000 for two or more. These limits have not been adjusted for inflation since they were last set, meaning the real value of the credit has eroded significantly as childcare costs have risen. In counties tracked by our most expensive rankings, annual infant care costs can exceed $20,000, making the $3,000 limit feel inadequate.

Dependent Care Flexible Spending Account (FSA)

If your employer offers a Dependent Care FSA, you can set aside up to $5,000 per year ($2,500 if married filing separately) in pre-tax dollars for childcare expenses. This money comes out of your paycheck before federal income tax, Social Security tax, and Medicare tax are calculated. Depending on your tax bracket, this can save you $1,000-$2,000 per year.

Important: you cannot use the same expenses for both the FSA and the CDCTC. If you use the full $5,000 FSA and have one child, you have no additional expenses to claim under the CDCTC (since the cap is $3,000). With two or more children, you could use the $5,000 FSA and claim the remaining $1,000 under the CDCTC. For most families in higher tax brackets, the FSA provides greater savings than the credit alone.

Learn more in our childcare glossary.

State-Level Childcare Tax Credits

More than 20 states offer their own childcare tax credits or deductions, often in addition to the federal credit. These vary significantly in generosity. Some states, like California and New York, offer credits that are a percentage of the federal CDCTC. Others, like Colorado and Maine, have independent credit programs with different income limits and benefit amounts.

A few notable state programs include:

• California, Offers a credit of up to 50% of the federal CDCTC for lower-income families
• New York, Provides a credit equal to 110% of the federal credit for families earning under $25,000, phasing down to 20% for higher incomes
• Colorado, Offers 50% of the federal credit for families earning under $60,000, with a lower percentage for higher incomes
• Maine, Provides a credit of 25% of the federal CDCTC with no income phase-out
• Oregon, Offers a working family childcare credit of up to $12,000 for low-income families

Check your state's childcare page for details on programs available in your area.

Employer-Provided Childcare Benefits

Beyond the Dependent Care FSA, some employers offer additional childcare benefits. These can include direct childcare subsidies, backup care programs, and on-site daycare centers. Under Section 45F of the Internal Revenue Code, employers can claim a tax credit for providing childcare facilities, which incentivizes these programs.

Employer-provided childcare assistance up to $5,000 per year is excluded from your taxable income. This is the same $5,000 limit that applies to Dependent Care FSAs, so you cannot double-count. However, some employers offer subsidies on top of the FSA that may have different tax treatment. See our guide on employer childcare benefits for more.

Strategies to Maximize Your Savings

The optimal tax strategy depends on your income, number of children, and available employer benefits. For most dual-income families, contributing the maximum $5,000 to a Dependent Care FSA is the best first step, as it provides immediate tax savings on every paycheck. If you have two or more children and expenses exceed $5,000, claim the additional $1,000 under the CDCTC.

For lower-income families (AGI under $43,000), the CDCTC may be more valuable than the FSA because the credit percentage is higher. Single parents and families earning under $15,000 can receive the maximum 35% credit rate, making the CDCTC worth up to $1,050 for one child or $2,100 for two children.

Use our affordability calculator to estimate your total childcare costs and potential tax savings based on your county's pricing data and household income.

What Qualifies as Childcare for Tax Purposes

The IRS defines qualifying childcare broadly. It includes daycare centers, family daycare homes, preschool programs, before- and after-school care, summer day camps, and nanny or babysitter expenses. Overnight camps do not qualify. The care must be primarily for the child's well-being and to allow the parent to work. According to the IRS Publication 503, payments to relatives can qualify as long as the relative is not your dependent or your child under age 19.