Child and Dependent Care Tax Credit
A federal tax credit offsetting a percentage of childcare expenses for working parents, worth up to $1,050 for one child or $2,100 for two or more.
The Child and Dependent Care Tax Credit (CDCTC), claimed on IRS Form 2441, allows working taxpayers to claim 20% to 35% of qualifying childcare expenses for children under 13, up to $3,000 of expenses for one child or $6,000 for two or more children. The credit percentage starts at 35% for families with adjusted gross income under $15,000 and phases down by one percentage point per $2,000 of income until reaching a floor of 20% for families earning above $43,000. The maximum credit is therefore $1,050 for one child or $2,100 for two or more children, amounts that have not been increased since 2001 and represent a small fraction of actual childcare costs in most U.S. counties where infant care exceeds $10,000 annually. The American Rescue Plan Act temporarily expanded the credit for tax year 2021 to a maximum of $4,000 per child or $8,000 for two or more, made it fully refundable, and raised the expense cap to $8,000 per child. That expansion expired and the current credit is again non-refundable, meaning it can only reduce tax liability to zero and provides no benefit to families with no federal income tax owed. Because the lowest-income families owe little or no federal income tax, the non-refundable structure means the credit provides the greatest dollar benefit to middle-income families rather than the families most burdened by childcare costs. Qualifying expenses must be for care that enables both parents (or the single parent in a single-parent household) to work, look for work, or attend school full-time. Expenses paid to a spouse, the child's parent, or another dependent do not qualify. Several states offer their own childcare tax credits that stack with the federal credit, with the most generous in New York, Minnesota, and Nebraska.