How Much Is the Child and Dependent Care Credit?
The Child and Dependent Care Tax Credit (CDCTC) is a tax credit of up to 35% of what you pay someone to take care of your children or adult dependents who can’t provide their own care. Any children whose care you claim must have been under the age of 13 at the time the care was provided. The rate used to calculate the credit is 35% if your adjusted gross income (AGI) is at least $15,000 but less than $45,000 as of 2022. It drops to 20% for those with AGIs of $45,000 to $438,000. There’s no credit eligibility for those with AGIs exceeding $438,000 or below $15,000. These percentages apply to up to $3,000 in care expenses for one dependent, or $6,000 for two or more dependents.
The Effect of the American Rescue Plan
The American Rescue Plan temporarily increased the CDCTC in 2021 to help working caregivers during the COVID-19 pandemic. The limit on expenses that could be claimed was increased to $8,000 for one dependent and $16,000 for two or more dependents. The maximum credit rate was also raised to 50%. This meant a maximum benefit of $4,000 for one individual receiving care and $8,000 for two or more. Families with incomes of up to $125,000 were eligible for the full credit, after which the percentage of expenses you could claim gradually decreased until it phased out. There was some hope for a while that these terms would be extended into tax year 2022, but that didn’t happen. The maximum Child and Dependent Care Credit has reverted to $2,100 in 2022, down from $8,000 in 2021.
How To Qualify for the Child and Dependent Care Credit
You must have a dependent child or an adult dependent who can’t be left alone while you work, look for work, or go to school full time. An adult dependent must be incapable of self-care. You must also have earned income during the tax year from a job or self-employment. Your spouse must also be working, looking for work, or attending school if you’re married, and must be thus unable to stay home and provide care. Your spouse must have earned income as well, but an exception exists if your spouse is disabled and incapable of caring for another person. You can’t claim this credit if you’re married and file a separate tax return except under certain rare circumstances.
Rules for Your Qualifying Dependents
Your child must have been younger than age 13 when the care was provided, or they must have been physically or mentally incapable of self-care if they were 13 or older. You can claim adult daycare expenses for a dependent age 13 or older or for your spouse if they’re physically or mentally unable to care for themselves. You can claim child care or adult daycare expenses for someone who lives with you for at least half the year if you’re married but living apart from your spouse. You must pay more than half the costs of maintaining your home to qualify. Divorced or separated parents sometimes agree to allow the noncustodial parent to claim their child as a dependent on their tax return. You can claim the credit if you don’t claim the child as a dependent, and they lived with you for more nights during the year than with their noncustodial parent and you paid for child care. Adult dependents qualify if they lived with you for more than half the year and were not physically or mentally able to care for themselves.
Rules for Qualifying Day Care Providers
You can’t claim the expenses if you make child care payments to a dependent who takes care of your children. For example, you can’t claim payments you make to your dependent child to take care of their brother. But the tax code does allow you to claim these expenses if you don’t claim your child as a dependent and they’re 19 or older by the end of the year. The IRS won’t allow you to claim a tax credit for the money you pay to your spouse to take care of your qualifying child.
