Can Paying For Daycare Reduce Your Tax Liability?

The child and dependent care credit is a tax credit that can help families pay for the care of eligible children and other dependents while they work. It is calculated based on income and a percentage of expenses incurred for the care. If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under 13 or a disabled dependent of any age, you may be eligible for this credit.

Currently, the Child and Dependent Care Credit is 20 to 35 of qualified expenses, with the maximum amount being $8,000. This tax break could put up to $8,000 back in families’ budgets. Eligible taxpayers can claim the credit if they have spent money on qualifying care expenses for their child or other eligible individuals.

Daycare is not part of itemized deductions but is eligible for a separate tax credit that can be used even when taking the standard deduction. The Child and Dependent Care Tax Credit (CDCTC) is the only tax credit that directly helps working parents offset the cost of child care. The CDCTC allows taxpayers to decrease their federal income tax by claiming the Credit for Child and Dependent Care expenses on their tax return.

Working parents are eligible for two tax benefits to offset child care costs: the child and dependent care tax credit and the exclusion for employer-provided childcare expenses. Existing federal law allows a tax credit called the Child and Dependent Care Expenses Credit. However, Illinois, Massachusetts, and Michigan do not offer a child and dependent care credit.