8.7 Child & Dependent Care Credit
Key Takeaways
- For 2025, the Child and Dependent Care Credit covers 20%–35% of up to $3,000 in expenses for one qualifying person ($6,000 for two or more); credit ranges from $600 to $1,050 (one person) or $1,200 to $2,100 (two or more)
- Credit percentage starts at 35% for AGI ≤ $15,000 and steps down 1% per $2,000 of AGI until reaching the 20% floor at AGI > $43,000
- Qualifying persons: a dependent child under age 13, a spouse incapable of self-care, or any other dependent incapable of self-care who lives with the taxpayer more than half the year
- Qualifying expenses: daycare, babysitters, preschool, before/after-school care, and DAY camps. Overnight camps, K–12 tuition, tutoring, and payments to a spouse, dependent, or own child under 19 never qualify
- Both spouses must have earned income (with student/disabled-spouse rules at $250/month for one qualifying person, $500/month for two or more); credit is nonrefundable; MFS generally cannot claim it
Child & Dependent Care Credit Overview (2025)
The Child and Dependent Care Credit helps working families offset care costs for children and disabled dependents. It is a nonrefundable credit claimed on Form 2441 and reported on Schedule 3, Line 2. OBBBA did not change the credit structure for 2025.
Purpose of the Credit
The credit applies to amounts paid for the care of a:
- Child under age 13 so the taxpayer can work or actively look for work
- Disabled spouse or dependent who cannot care for themselves
- Disabled individual who lived with the taxpayer for more than half the year
Expenses must be work-related — they enable the taxpayer (and spouse, if married) to work, look for work, or attend school full-time.
2025 Credit Calculation
Dollar Limits on Expenses
| Number of Qualifying Persons | Maximum Expenses |
|---|---|
| One qualifying person | $3,000 |
| Two or more qualifying persons | $6,000 |
These caps remain the pre-ARPA amounts (the 2021 ARPA expansion to $8,000/$16,000 with full refundability is no longer in effect).
Credit Percentage Based on AGI
| AGI Range | Credit Percentage |
|---|---|
| $0 – $15,000 | 35% |
| $15,001 – $17,000 | 34% |
| $17,001 – $19,000 | 33% |
| $19,001 – $21,000 | 32% |
| $21,001 – $23,000 | 31% |
| $23,001 – $25,000 | 30% |
| $25,001 – $27,000 | 29% |
| $27,001 – $29,000 | 28% |
| $29,001 – $31,000 | 27% |
| $31,001 – $33,000 | 26% |
| $33,001 – $35,000 | 25% |
| $35,001 – $37,000 | 24% |
| $37,001 – $39,000 | 23% |
| $39,001 – $41,000 | 22% |
| $41,001 – $43,000 | 21% |
| Over $43,000 | 20% |
Starting at 35% for AGI ≤ $15,000, the percentage decreases by 1% for each additional $2,000 of AGI, bottoming out at 20% for AGI > $43,000.
2025 Maximum Credit Amounts
| Qualifying Persons | Maximum Expenses | Lowest Rate (20%) | Highest Rate (35%) |
|---|---|---|---|
| One | $3,000 | $600 | $1,050 |
| Two or more | $6,000 | $1,200 | $2,100 |
Credit Calculation Example
Scenario: Sarah is single with AGI $50,000 and one child under 13. She paid $5,000 for daycare in 2025 so she could work.
- Maximum creditable expenses (one qualifying person): $3,000
- Credit rate (AGI > $43,000): 20%
- Credit: $3,000 × 20% = $600
Even though Sarah paid $5,000, only $3,000 is creditable because she has one qualifying child.
Qualifying Person Requirements
1. Qualifying Child Under Age 13
- Child must be under age 13 when care was provided
- Must be a dependent (or could be)
- Must meet the relationship test (child, stepchild, foster child, sibling, or descendant)
- Only expenses paid while the child is under 13 qualify (prorate at the 13th birthday)
2. Spouse Incapable of Self-Care
- Physically or mentally incapable of self-care
- Lived with taxpayer more than half the year
3. Other Dependent Incapable of Self-Care
- Physically or mentally incapable of self-care
- Lived with taxpayer more than half the year
- Dependent (or would be, except for gross-income or joint-return tests)
Qualifying Expenses
Qualifies
- Daycare centers (must comply with state/local law)
- Babysitters
- Day camps (sports, specialty, summer)
- Before/after-school programs
- Nannies, au pairs
- Nursery school / preschool (below kindergarten)
- Household services attributable to qualifying person's well-being
Does NOT Qualify
- Overnight camp
- School tuition (kindergarten and above)
- Tutoring
- Food and clothing
- Transportation to/from care
- Medical care
- Summer school / entertainment expenses
EA Exam Tip: Day camp qualifies; overnight camp does NOT. This is the most frequently tested expense rule.
Care Provider Requirements
Provider information (name, address, TIN — SSN or EIN) must be reported on Form 2441. If you cannot obtain the TIN, document a Form W-10 due-diligence request.
Who CANNOT Be a Care Provider
| Ineligible Provider | Rule |
|---|---|
| Spouse | Cannot pay spouse |
| Parent of qualifying child | If qualifying person is your own child under 13 |
| Your child under age 19 | Even if not a dependent |
| Your dependent | Anyone you claim as a dependent |
Earned Income Requirement
Both spouses (if married) must have earned income during the year.
Earned Income
- Wages, salaries, tips
- Net self-employment earnings
- Strike benefits
- Disability pay reported as wages
Not Earned Income
- Unemployment, Social Security
- Pensions/retirement, investment income
- Child support, alimony
Special Rules
- Full-time student (5+ months): treated as earning $250/month if one qualifying person, $500/month if two or more
- Disabled spouse: same $250/$500 imputed earnings rule
The credit is limited to the lower of (a) actual work-related expenses or (b) the earned income of the lower-earning spouse.
Dependent Care FSA vs. Child and Dependent Care Credit
| Feature | Dependent Care FSA | Child and Dependent Care Credit |
|---|---|---|
| 2025 Maximum | $5,000 ($2,500 if MFS) | $3,000 / $6,000 of expenses |
| Tax Treatment | Pre-tax (excluded from income) | Credit against tax |
| Payroll Tax Savings | Also avoids 7.65% FICA | None |
| Forfeiture Risk | Yes — use-it-or-lose-it | No |
| Employer Required | Must be offered | All filers can claim |
| Refundability | N/A | Nonrefundable |
Coordination Rules
No double-dipping. Reduce the credit's $3,000 / $6,000 expense limit by employer dependent-care benefits (W-2 Box 10).
Example: $5,000 DCFSA contribution + two qualifying children → credit expense limit becomes $6,000 − $5,000 = $1,000.
Which Is Better?
Generally DCFSA wins for AGI > $30,000 because the FSA also avoids 7.65% FICA. Lower-income taxpayers may prefer the credit because of the higher (up to 35%) rate. With two or more qualifying children and expenses over $5,000, a mix is optimal: $5,000 DCFSA + credit on the remaining $1,000.
Form 2441 Overview
- Part I: Care provider information
- Part II: Credit calculation
- Part III: Coordination with W-2 Box 10 dependent-care benefits
Form 2441, Line 11 → Schedule 3, Line 2 → Form 1040, Line 20.
Divorced or Separated Parents
Only the custodial parent can claim the credit, even if the noncustodial parent (via Form 8332) claims the child as a dependent and pays for childcare.
Custodial Parent
Parent with whom the child lived for the greater number of nights during the year; if equal, the parent with the higher AGI.
Key Points
- Form 8332 transfers dependency and Child Tax Credit but NOT the Child and Dependent Care Credit
- Custodial parent may claim the credit even when the noncustodial parent claims the dependent
- Each parent's own earned-income test applies on their own return
Filing Status Restrictions
| Filing Status | Can Claim? |
|---|---|
| Single | Yes |
| HoH | Yes |
| MFJ | Yes |
| QSS | Yes |
| MFS | Generally No |
MFS Exception (Treated as Unmarried)
All three conditions must be met:
- Lived apart from spouse for the last 6 months of the year
- Home was the qualifying person's main home for more than half the year
- Paid more than half the cost of keeping up the home
EA Exam Tips (2025)
- Expense limits: $3,000 / $6,000 (unchanged in 2025)
- Credit percentage formula: 35% minus 1% per $2,000 of AGI above $15,000, floor 20% at $43,000+
- Day camp YES, overnight camp NO
- Child must be under 13 at time of care
- Cannot pay spouse, dependent, parent of qualifying child, or own child < 19
- Both spouses need earned income (student/disabled imputed at $250 / $500 per month)
- MFS generally cannot claim — narrow "separated spouse" exception
- DCFSA coordinates dollar-for-dollar with the credit
- Custodial parent claims the credit even if noncustodial parent claims dependency
- Form 2441 requires provider's SSN/EIN
- Nonrefundable — cannot generate a refund
For 2025, what is the maximum amount of qualifying expenses that can be used to calculate the Child and Dependent Care Credit for a taxpayer with three qualifying children?
Tom and Linda are married with two children ages 4 and 7. In 2025 they paid $4,000 for a summer day camp and $3,000 for an overnight summer camp. Their AGI is $80,000. What amount of expenses qualifies for the Child and Dependent Care Credit?
Maria has 2025 AGI of $25,000 and paid $4,500 in daycare expenses for her 5-year-old son. What is her Child and Dependent Care Credit?