Child Care, Dependent Care Tax Credit

Child and dependent care can be very expensive, but there is a federal tax credit to help with these costs. If you paid someone during 2021 to care for your child, dependent, or spouse so you could work, look for work, go to school, or because of a disability, then you may be able to claim the Child and Dependent Care Credit. Note: This tax credit is not the same as the Child Tax Credit - in fact, you may be able to claim both. Use the Child and Dependent Care Calculator - or CAREucator - tool below to see if you qualify for the Child and Dependent Care Credit.

Below the calculator, find important information regarding the 2021 Child and Dependent Care Credit (CDCC). This credit has been greatly changed as part of the third stimulus plan or American Rescue Plan Act for 2021 only.

As of October 17, 2022, you can no longer e-file 2021 Tax Returns. Instead, use these 2021 Tax Calculators and Forms to prepare your 2021 Taxes before you mail them to the IRS and/or state tax agency.



Child and Dependent Care Tax Credit

This tax credit for daycare expenses is a nonrefundable credit, meaning it will not be part of your tax refund and will only pay any taxes owed. For example, if you owe $1,000 in federal taxes, but then claim this credit for $2,000, then you will effectively reduce your taxes to $0 and the remaining money will be eliminated.

However, for 2021 only, it is fully refundable. Use the tool to determine your credit amount and see details below the tool.

Childcare Tax Credit - CAREucator Tool Learn more about this tax credit

2021 CAREucator
Child and Dependent Care Tax Credit

Can You Claim the Child and Dependent Care Credit?

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Child and Dependent Care Tax Credit
Is the person a U.S. citizen, or resident alien, or national, or a resident of Canada or Mexico with a valid SSN or ITIN or ATIN and born on or before December 31, 2021? More Qualifying Details
How is this person related to you? Relationship Details
Was the child under the age of 18 as of Dec. 31 of the tax year? Dependents and Age
Was Your Child:
  • - Under age 19?
  • - A student under age 24?
  • - Permanently or totally disabled at any age?
  • If any of the above are true, click on Yes below.
Did the child live with you for more than half of the year?
Did the child provide more than half of his or her own support for the year?
Did the child file a joint tax return?
Is the person a qualifying dependent of any other taxpayer?
Did the person live with you all year as a member of your household?
Was the person's gross income for the year
MORE than $4,300? Qualifying Relative Income
Did you provide more than half - 50% plus -
of the person's total support for the year? Support Details
Did you have earned income during the tax year? Earned Income Details
Did you pay expenses for the care of your dependent to allow you to work or look for work? Dependent Care Expense Details
Are you excluding or deducting at least $3,000 of dependent care benefits for this dependent?
Were your dependent care payments made to:
  • - Someone you or your spouse could claim as a dependent?
  • - Your spouse?
  • - The parent of your qualifying child who is under age 14?
  • - Your child who was under age 19 at the end of the tax year?
Select your Filing Status
Do you know the care provider’s name, address, and identifying number? Or if not, Did you make a reasonable effort to get this information? (See due diligence.)
Here are your results:
Is this person your dependent and can they be included on your Tax Return?
No
Does this person qualify for the Child Tax Credit, worth up to $3,600 per child?
No
Does this person qualify for the Credit for Other Dependents, worth up to $500 per person?
No
Can you claim the Dependent Care Credit for this person, worth up to $8,000?
No
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The Child and Dependent Care Credit in 2021

As part of the American Rescue Plan Act passed in 2021, this tax credit was greatly enhanced for Tax Year 2021 only. If you paid for childcare during 2021, you can claim this as one credit on your 2021 Tax Return and it is fully refundable. Keep detailed record of your dependent care expenses as they will be needed when you file your 2021 Tax Return. Use the current tax year CAREucator tool if you paid for childcare expenses this year.

The plan gave a maximum, fully refundable tax credit on the amount up to $8,000 towards paying for childcare. As a refundable tax credit, this means you can receive the amount even if you do not owe taxes. In short, the IRS is paying half of these expenses up to a maximum of $8,000 per child, where the taxpayer pays $8,000 during the year and receives half of it back as a tax refund. The credit also covers up to $16,000 for two or more children; the taxpayer pays up to $16,000 in qualifying childcare expenses and receives half of it back as a refund.

The credit amount begins to phaseout or decrease when the taxpayer or household income reaches $125,000. The credit is decreased by 50% for any amount between $125,000 and $183,000, where it is phased out to 20%. This 20% lasts until the income reaches a maximum of $400,000. Any amounts from $438,000 and above will reduce the credit to $0.

Examples

You are a single taxpayer with two dependents for whom you pay daycare expenses so you can work totaling $14,000 for Tax Year 2021. You have an Adjusted Gross Income or AGI of $80,000, so you do not reach the phaseout threshold and can claim the full credit. Since you have two dependents in daycare, you qualify for up to $16,000 instead of $8,000. On your tax return, you will be able to claim a credit for half of your childcare expenses, totaling a refundable credit of $7,000.

You and your spouse file a joint return, including your one dependent child. You make a combined income of $120,000, under the threshold, and pay $9,000 in childcare expenses so you can work. The IRS will refund you half of this, but only up to $8,000 since you have one dependent in daycare. On your tax return, you will see a credit of $4,000 to go towards the $9,000 you paid.

Additionally, if your employer provides dependent care assistance on your W-2, then you will be able to exclude a maximum amount of $10,500 or $5,250 if single or separate, up from $5,000 and $2,500 respectively, from your taxable income on your 2021 Tax Return.

See also:

After finding out if you qualify to claim this credit, you can prepare and mail your 2021 Return with these free tax forms. In the future, prepare and e-file your current taxes on eFile.com and we will help claim this tax credit and any other credits or tax deductions you may qualify for. Income Taxes are difficult, preparing them shouldn't be! eFileIT on eFile.com.

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