With childcare costs continuing to rise, many working families are looking for ways to reduce their tax bill. One valuable opportunity is the Child and Dependent Care Credit, which can help offset the cost of caring for a qualifying child or dependent while you work or actively look for work. Understanding what qualifies—and the changes taking effect in 2026—can help you make the most of this important tax benefit.
A tax credit represents a dollar-for-dollar reduction of your income tax liability. A deduction, in contrast, only reduces your taxable income.
To be eligible for this credit, you must provide care for a qualifying person, possess earned income, and incur work-related expenses.
Who is a qualifying dependent?
There are several tests that determine if you may take the credit; you must meet all of them. The care must be for one or more qualifying persons who are identified on the form you use to claim the credit
A qualifying person is:
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- Your qualifying child who is your dependent and who was under age 13 when the care was provided (to be your qualifying child, a child must live with you for more than half the year and meet other requirements),
- Your spouse who was physically or mentally unable to care for himself or herself and lived with you for more than half the year, or
- A person who was physically or mentally unable to care for himself or herself, who lived with you for more than half the year, and either was your dependent relative or would have been your dependent except that he or she had (1) gross income equal to or in excess of $4,400 (in 2022), or (2) he or she filed a joint return, or (3) you, or your spouse if filing jointly, could be claimed as a dependent on someone else’s tax return.
Read more about who qualifies as a dependent in general for the IRS.
What counts as dependent care expenses?
Your child and dependent care expenses are considered to be work-related only if both of the following are true: (1) they allow you (and your spouse if you’re married) to work or look for work, and (2) they’re for a qualifying person’s care. If you’re married, both you and your spouse generally must work or look for work. Your spouse is treated as working during any month he or she is a full-time student or is physically or mentally unable to care for himself or herself. Your work can be for others or in your own business or partnership. It can be either full-time or part-time.
Work also includes actively looking for work. However, if you don’t find a job and have no earned income for the year, you can’t take this credit. That’s because the credit can’t exceed your earned income.
Whether the expenses you incur are necessary to allow you to work or look for work depends on the facts. In general, dependent care expenses for a period in which you are absent from work are not employment-related. However, if your absence from work is short and temporary (e.g., you have a minor illness or take a brief vacation) and you pay dependent care expenses on a weekly or longer basis, the expenses you pay for child and dependent care during this time will be considered work-related.
If you work part-time, you generally must figure your expenses for each day. However, if you are required to pay for dependent care expenses on a weekly or longer basis, you will not be required to allocate expenses between days worked and days not worked.
To qualify as work-related, your expenses must be incurred to provide care for a qualifying person. Such expenses are considered to be for the care of a qualifying person if the main reason they are incurred is to assure that person’s well-being and protection. Here are some examples of expenses that may qualify as work-related, assuming specific requirements are met:
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- Expenses you incur for some household services (such as the cost of a housekeeper, maid, or cook)
- Fees paid to obtain care (including application fees, agency fees, and deposits) when and if care is actually provided
- The cost of preschool, nursery school, or other similar programs below kindergarten
- Expenses for before-school and after-school care programs
- Expenses for day camps (even for camps that specialize in certain activities)
- The amount you pay to a dependent care provider to transport your child to and from care, even if that cost is billed separately from other care expenses
Payments for services provided outside your home are qualified only if they are incurred for the care of a dependent under age 13, or for any other qualifying individual who regularly spends at least eight hours each day in your home.
What are examples of expenses that generally qualify?
The following expenses generally qualify for the Child and Dependent Care Credit:
- Daycare centers and licensed childcare providers.
- Preschool or nursery school (before kindergarten).
- Before- and after-school care programs.
- Babysitters and nannies.
- In-home caregivers.
- Summer day camps (overnight camps do not qualify).
These expenses must be incurred primarily to allow you to work or actively seek employment.
What are examples of expenses that don’t qualify?
Not all child-related expenses are eligible. The following generally do not qualify:
- Kindergarten or private school tuition.
- Overnight camps.
- Tutoring services.
- Music, dance, or sports lessons.
- Transportation, meals, or clothing billed separately from childcare.
Understanding the distinction between childcare and educational expenses can help prevent errors on your tax return.
What are the filing status requirements?
Generally, married couples must file a joint return to take the credit. However, if you’re legally separated or living apart from your spouse, you may be able to file a separate return and still take it. Special rules apply in the case of divorced or separated parents.
If your spouse died during the year and you don’t remarry before the end of the year, you generally must file a joint return to take the credit. If you do remarry before the end of the year, the credit can be claimed on your deceased spouse’s federal income tax return.
What’s new for 2026?
The One Big Beautiful Bill Act (OBBBA) introduced important improvements for working families beginning with the 2026 tax year.
Key updates include:
- The maximum Child and Dependent Care Credit rate increased from 35% to 50% for eligible lower-income taxpayers.
- The maximum credit increased to $1,500 for one qualifying individual and $3,000 for two or more qualifying individuals.
- The Dependent Care Flexible Spending Account (FSA) contribution limit increased from $5,000 to $7,500 (if your employer adopts the higher limit).
- The maximum qualifying expenses remain $3,000 for one qualifying individual and $6,000 for two or more.
- The credit remains nonrefundable, meaning it can reduce your tax liability but cannot create a refund beyond the tax you owe.
How can you claim the credit?
You must file Form 2441 with your tax return to claim the credit. The amount of your work-related child and dependent care expenses is first subject to an earned income limit and a dollar limit. The amount of your credit is then determined by multiplying your allowable expenses by a percentage factor based on your adjusted gross income (AGI).
To claim the credit, be sure to retain the following records:
- Your care provider’s name and address.
- Their Employer Identification Number (EIN) or Social Security Number (SSN).
- The total amount paid during the year.
- Receipts, invoices, or payment records.
Accurate documentation makes tax filing easier and helps support your claim if additional information is requested.
Whether you’re filing your 2025 or 2026 tax return, understanding the Child and Dependent Care Credit can lead to meaningful tax savings. With enhanced benefits available in 2026, now is an excellent time to review your childcare expenses and coordinate them with any employer-sponsored Dependent Care FSA. Careful planning today can help you maximize your tax benefits and keep more money in your pocket.
If you have questions about how this topic will impact you, Team LittleOwl CPA is here to help. Schedule a discovery call today!
About Tabitha Regan
Tabitha Regan is the Founder and CEO of LittleOwl CPA. Tabitha is a Certified Public Accountant, Certified Financial Planner™ and Personal Financial Specialist. In her 16+ year career span, she has developed an expertise in the specific needs of small businesses and busy professionals with accounting, tax and advisory services.
