Both parents must work or be actively looking for work. The care must be for a qualifying child under 13 or a disabled dependent. The credit percentage phases down from 35% to 20% as income rises above $15,000.
Pro Tip: A Dependent Care FSA ($5,000 pre-tax) is almost always more valuable than the credit for higher earners. If your employer offers one, max it out before claiming the credit.
The credit is worth 20%--35% of qualifying childcare expenses, up to $3,000 for one qualifying person or $6,000 for two or more. The percentage is higher for lower-income households and phases to 20% for AGI above $43,000. Qualifying care includes daycare centers, babysitters, nannies, after-school programs, and summer day camps (not overnight camps).
If your employer offers a Dependent Care FSA, you can exclude up to $5,000 per year from your taxable income for childcare costs. This is a pre-tax benefit -- you save at your marginal tax rate on every dollar. For a household in the 22% bracket, $5,000 in the FSA saves $1,100 in federal taxes alone.
You cannot double-count expenses. If you use $5,000 in a Dependent Care FSA, you reduce the expenses eligible for the credit by $5,000. For most middle and upper-income families, maxing the FSA and then claiming the credit on remaining expenses is the optimal strategy.
Here is how this deduction typically works in real situations:
A married couple with two children under 13 earns $90,000 combined and spends $10,000 on daycare.
An employee contributes the maximum $5,000 to a Dependent Care FSA through their employer and spends $12,000 on childcare.
A family pays a nanny $25,000 per year to care for their two children while both parents work.
Key Takeaway: The difference between a valid deduction and a denied one usually comes down to documentation, usage percentage, and proper structuring. The same expense can be fully deductible, partially deductible, or not deductible at all — depending on how it is handled.
You can claim the credit on up to $3,000 of expenses for one qualifying person or $6,000 for two or more. The credit rate ranges from 20% to 35% depending on your income. At $43,000+ AGI, the rate is 20%, giving a maximum credit of $600 (one child) or $1,200 (two or more).
Yes. You must report the care provider name, address, and taxpayer identification number (SSN or EIN) on Form 2441. If the provider refuses to give their TIN, you can still claim the credit but must explain the situation -- the IRS may deny it without the provider information.
Yes, but you cannot use both for the same expenses. The $6,000 credit limit is reduced by any FSA amounts. If you contribute $5,000 to a DCFSA, only $1,000 of the $6,000 limit remains eligible for the credit.
Click your profession to see all the write-offs that apply to your full tax profile.
