Do You Earn Too Little To Qualify For The Childcare Credit?

The Child and Dependent Care Tax Credit is a nonrefundable tax credit available to taxpayers with dependent children under the age of 17. It can be tax-advantaged, lowering taxable income by the corresponding amount contributed. Taxpayers who are paying someone to take care of their children or another member of the household while they work may qualify for this credit.

A temporary change in the American Rescue Plan allows parents or guardians to claim a maximum credit of $4,000 (50 of $8,000 in expenses) for one child, and $8,000 for two or more children. U.S. households must have a combined income of less than $15,000 to get the maximum $1,050 for one child or $2,100 for two or more children, an IRS reimbursement rate of 35 percent.

Previously, taxpayers could claim the Child and Dependent Care Credit for between 20 and 35 percent of their eligible expenses, up to $3,000 for one qualifying dependent. One of the most immediate benefits of the Daycare Credit is that it reduces the amount you owe in income taxes, which increases your available income for other purposes.

To qualify for the Child and Dependent Care Credit, taxpayers must either have an earned income of at least $2,500 or have three or more qualifying dependents. For single parents, about half have incomes too low to qualify for the nonrefundable credit. Making the credit refundable could change households’ math, as the lowest-income taxpayers receive 35 of those expenses in the form of a credit.

For tax year 2023, there is no upper income limit that would prevent you from claiming the Child and Dependent Care Credit, but families with low incomes, including many women-headed households and families of color, are largely shut out of the credit.