Do Child Care Costs Reflect Inflation?

Child and Dependent Care Tax Credit (CDCTC) is a tax break for working people with qualifying dependents, which can help offset the costs of childcare expenses for children under 13 or any dependents. The credit is calculated by multiplying the amount of expenses by the family’s adjusted gross income (AGI). The maximum amount of the credit is $4,000 (50 of $8,000 in expenses) for one child, and $8,000 for two or more children.

For tax year 2021, the top credit percentage of qualifying expenses increased from 35 to 50. The CDCTC allows taxpayers to decrease expenses for child care (children under the age of 13) and adult dependents by claiming the credit on their annual income. The total expenses used to calculate the credit may not be more than $3,000 (for one qualifying individual) or $6,000 (for two or more qualifying individuals).

The amount of your adjusted gross income determines the percentage of work-related expenses that you are allowed as a credit. For example, if your AGI is $125,000 or less, you can claim the maximum percentage of expenses if your AGI is $125,000 or less. If a taxpayer’s AGI exceeds the limitations shown in the preceding table, they may not claim a Colorado credit for their child care expenses.

Currently, the Child and Dependent Care Credit is 20 to 35 percent of qualified expenses, with the percentage depending on your AGI.