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Child and dependent care credit: 2020 tax year

Working parents with child care expenses can claim this credit, but there are strict requirements.

The Child Care Tax Credit, also known as the Child and Dependent Care Tax Credit, was created to provide tax relief for working parents. But you must meet strict requirements to qualify.

What is the Child and Dependent Care Credit?

The Child Care Tax Credit helps working parents pay for daycare expenses for children under 13, incapacitated spouses and qualifying adult dependents.

If you qualify, you can claim up to $3,000 of care expenses for one dependent or $6,000 for two or more dependents. You’ll receive a credit worth 20% to 35% of these expenses depending on your income.

How much is the Child and Dependent Care Credit worth in 2020?

There are two parts to the Child Care Tax Credit. The first part tells you how much you can write off based on your filing status and number of dependents.

You can find your limit in the chart below:

Child Care Tax Credit limits 2020

Number of dependentsSingle, married filing jointly or head of householdMarried, filing separately
One$3,000Not eligible
Two or more$6,000Not eligible

The second part tells you the percentage of eligible expenses you’ll get a credit for based on your adjusted gross income. You can find your percentage in the chart below:

Amount of credit

Adjusted gross incomeCredit percentage
Up to $15,00035%
$15,001 to $17,00034%
$17,001 to $19,00033%
$19,001 to $21,00032%
$21,001 to $23,00031%
$23,001 to $25,00030%
$25,001 to $27,00029%
$27,001 to $29,00028%
$29,001 to $31,00027%
$31,001 to $33,00026%
$33,001 to $35,00025%
$35,001 to $37,00024%
$37,001 to $39,00023%
$39,001 to $41,00022%
$41,001 to $43,00021%
$43,001 or more20%

Limits

The child care tax credit has several limits, such as:

  • Married couples filing separately don’t qualify. You don’t qualify for the child care tax credit if you’re married and filing separately, unless you are legally separated or living apart from your spouse.
  • It’s not refundable. If this credit reduces your tax bill to $0, you won’t receive a refund for any credit that’s left over.
  • Claimed expenses can’t exceed earned income. If you spent $8,000 in daycare expenses but only earned $6,000 this year, you can only claim $6,000 worth of daycare expenses.
  • Employer benefits reduces eligible expenses. If your employer offers dependent benefits, you must subtract them from your childcare expenses before you claim the credit.
  • If you’re married, both spouses must work. Both spouses must have earned income for the year to qualify for the child care tax credit.
  • Some states have their own dependent care credits. You could receive an additional dependent care credit if your state offers one.

How much was the Child and Dependent Care Credit worth in previous years?

The child care tax credit hasn’t changed in the past three years.

Who qualifies for the Child and Dependent Care Credit?

You qualify for the child care tax credit as long as you:

  • Aren’t filing separate returns if you’re married.
  • File taxes using Form 1040 or 1040NR.
  • Have earned income through an employer or self-employment.
  • Care for a qualifying child or dependent.
  • Pay dependent care expenses so you and your spouse can work or look for work.
  • Make payments to a qualifying care provider who you can’t claim as a dependent.
  • Can provide the name, address and tax identification number for the care provider on your tax return.

Who qualifies as a child or dependent?

The child or dependent must have lived with you for at least half of the tax year and meet one of the following eligibility requirements:

  • A child age 13 or younger whom you can claim as your dependent
  • A spouse or another dependent who is mentally or physically incapacitated

Who qualifies as a care provider?

Anyone can qualify as a care provider as long as they’re not:

  • Your spouse.
  • The parent of your qualifying dependent.
  • Another dependent listed on your return.
  • Any of your children under age 19, even if you’re not claiming them as your dependent.

How to calculate the Child and Dependent Care Credit

Follow these steps to calculate your child care tax credit.

  1. Add up all your qualifying dependent care expenses for the year.
  2. Calculate how much of your expenses you can claim based on your filing status and number of dependents.
  3. Calculate your adjusted gross income by subtracting 401(k) or IRA contributions and itemized deductions from your gross income.
  4. Take your adjusted gross income and use the chart above to determine what percentage of your expenses you can get credit for.
  5. Multiply your eligible dependent care expenses in Step 2 by your percentage in Step 4 to get your child care tax credit amount.

Let’s look at an example.

Mandy’s adjusted gross income is $70,000 a year. She has one qualifying child and spent $5,000 on daycare expenses. According to the charts above, she can get a 20% credit for the first $3,000 in qualifying expenses, so her credit would be $600.

If you have children, you may also qualify for these credits:

  • Earned Income Tax Credit. If your income is below $56,000, you could receive a credit worth up to $6,660.
  • Child Tax Credit. If you have children under age 17, you could receive a credit worth up to $2,000 for each child.

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Bottom line

If you qualify for the Child and Dependent Care Credit, you could receive a credit worth up to $1,050 for one dependent or $2,100 for two or more. There are strict qualifications, but you shouldn’t let that stop you from claiming it if you qualify. Be sure to have your care provider’s taxpayer identification number on hand when you’re ready to file taxes.

If you’re looking to breeze through this tax season, consider hiring a professional or compare top-rated online services that can do most of the legwork for you.

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