Why Might My Child Care Credit Be Reduced?

The Child and Dependent Care Tax Credit (CDCC) is a tax break for working people with qualifying dependents who are paying someone to take care of their children or another member of the household while they work. It helps offset the costs associated with childcare and dependent care. Eligible taxpayers can claim the credit if they have spent money on qualifying care expenses for their child or other eligible individuals. To claim the credit, U.S. families must have a qualifying child or dependent, child care expenses incurred to either work or look for a job, and a jointly filed tax return.

The CTC is nonrefundable, meaning if the value of the credit exceeds the amount owed, any balance is forfeited and not paid to the family. This credit could reduce or even wipe out your tax liability, but it won’t entitle you to a refund. The credit is aimed at supporting families to offset the costs associated with child care or care for a dependent with a disability.

Four states provide a child and dependent care expenses tax deduction, which can lower your taxable income. The child tax credit is reduced by $50 for each $1,000 of your excess income over this threshold. For example, if you qualify for head of household filing, you may be eligible for the CDC.

In summary, the Child and Dependent Care Tax Credit is a tax break for working people with qualifying dependents who are paying for childcare and dependent care expenses.