You may reduce your federal income tax through a daycare tax benefit, but it is not a refund you receive in cash

The Child and Dependent Care Credit lets you subtract some daycare costs from the federal income tax you owe. This is different from a refund. A refund is money the government sends you back. A credit reduces what you owe in the first place. If the credit is larger than your tax bill, you may get money back — but that depends on whether the credit is refundable or non-refundable.

The Child and Dependent Care Credit is non-refundable, which means it can only reduce your tax bill to zero. If the credit is bigger than what you owe, you lose the extra amount. You do not get it as a refund check.

There is one exception: some states offer their own daycare credits that are refundable, meaning you can receive money back even if you owe no federal tax. Whether this applies to you depends on where you live and your income.

Key Takeaways

  • The Child and Dependent Care Credit reduces your federal tax bill by up to $1,050 per year if you have one dependent, or up to $2,100 if you have two or more, based on your income and daycare spending.
  • This credit is non-refundable, so it can only lower your tax bill to zero — any unused credit does not come back to you as a refund.
  • You must have earned income (from work) in the year you claim the credit, and the daycare must be for a child under age 13 or a dependent who cannot care for themselves.
  • Some states offer their own refundable daycare credits that may send you money back even if you owe no federal tax.
  • You claim this credit on Form 2441 and attach it to your federal tax return.

How the Child and Dependent Care Credit works

The credit covers a percentage of what you paid for daycare, preschool, summer camp, or in-home care — as long as the care allowed you to work or look for work. The percentage depends on your income. If your income is $15,000 or less, the credit covers up to 35 percent of your daycare costs. As your income rises, the percentage drops, reaching 20 percent at $43,000 and above.

The maximum amount you can claim in daycare costs is $3,000 per year if you have one child, or $6,000 if you have two or more. So the largest credit you can receive is $1,050 (35 percent of $3,000) or $2,100 (35 percent of $6,000), depending on your income and number of dependents.

You cannot claim costs for overnight camp, school tuition (even if the school provides before- or after-school care), or care by a spouse or dependent. You also cannot claim costs for a child age 13 or older, unless that child has a disability.

What daycare expenses count

may be able to access expenses include daycare centers, family daycare homes, nannies, babysitters, and au pairs — but only the portion of their pay that goes toward childcare. If you pay a nanny $500 per week and she also does housework, you can only count the childcare portion.

Before- and after-school care, summer day camp, and preschool all count. Overnight camp does not. Neither does school tuition, even if the school runs a daycare program before or after classes.

You will need the name, address, and tax identification number (usually a Social Security number or employer identification number) of whoever provided the care. If you cannot provide this information, you cannot claim the credit.

Income limits and how they affect your credit

There is no income limit to claim the credit, but your income determines what percentage of your daycare costs you can deduct. The higher your income, the lower the percentage.

At $15,000 or less in adjusted gross income, you can claim 35 percent of your costs. For every $2,000 your income rises above $15,000, the percentage drops by one point, until it reaches 20 percent at $43,000 and stays there for all higher incomes.

If you are married and file jointly, both spouses' incomes count. If you are married and file separately, you cannot claim this credit at all.

When you cannot claim the credit

You must have earned income — money from a job or self-employment — in the year you claim the credit. If you did not work that year, you cannot use it. Your spouse must also have earned income if you are married and filing jointly, unless your spouse was a full-time student or unable to care for themselves.

You cannot claim the credit if the child is your own dependent and you are claiming them as a dependent on your return. You also cannot claim it for care provided by your spouse, your parent, or anyone else you claim as a dependent.

If you received dependent care benefits from your employer (such as a dependent care flexible spending account), you must subtract those benefits from your daycare costs before calculating the credit. This is called the coordination rule, and it prevents you from getting a tax break twice for the same expense.

How to claim the credit on your tax return

You report the Child and Dependent Care Credit on Form 2441, which you attach to your federal tax return. The form asks for the name, address, and tax identification number of the person or facility that provided the care, the amount you paid, and the dates the care was provided.

If you use tax software, it will usually walk you through the questions and fill in Form 2441 for you. If you file by hand or with a tax preparer, give them your daycare receipts and the provider's information.

You must file your return to claim the credit — you cannot claim it on an amended return filed more than three years after the original due date.

State daycare credits that may refund money to you

Some states offer their own daycare credits on top of the federal one. A few of these are refundable, meaning you can receive money back even if you owe no state income tax. Whether your state offers this depends on where you live and your income.

States that currently offer refundable daycare credits include Maryland, New York, and a few others, but the rules and amounts change. Your state tax agency website will have the current information. If you live in a state with income tax, it is worth checking whether a refundable credit is available to you.

Dependent care flexible spending accounts as an alternative

Some employers offer a dependent care flexible spending account (FSA), which lets you set aside pre-tax money to pay for daycare. Money you put into this account is not subject to federal income tax, which can save you more than the tax credit in some cases.

The trade-off is that you must estimate how much you will spend on daycare that year, and you lose any money you do not use. You also cannot claim the tax credit for expenses you paid with FSA money — the coordination rule prevents double-dipping.

If your employer offers both an FSA and a tax credit, you may want to run the numbers both ways to see which saves you more money.

Frequently Asked Questions

Can I get money back if the credit is bigger than my tax bill?

No. The Child and Dependent Care Credit is non-refundable, so it can only reduce your tax bill to zero. If you owe $500 in taxes and your credit is $800, you save the full $500 but do not receive the extra $300. Some states offer refundable daycare credits that work differently, so check your state's rules.

What if I used an FSA to pay for daycare — can I still claim the credit?

You can claim the credit only for daycare costs you paid out of your own pocket. Any costs you paid with FSA money must be subtracted from your total daycare spending before you calculate the credit. This rule prevents you from getting a tax break twice for the same expense.

Do I need receipts to claim the credit?

You do not need to attach receipts to your return, but you must keep them for your records in case the IRS asks. You will definitely need the provider's name, address, and tax identification number to fill out Form 2441.

Can I claim the credit for my grandchild if I pay for their daycare?

Yes, if the grandchild lives with you for more than half the year and you claim them as a dependent on your return. You must have earned income that year, and the same rules about may be able to access care explore.

What if my daycare provider will not give me their tax ID number?

You cannot claim the credit without it. The IRS requires the provider's name, address, and tax identification number on Form 2441. If the provider refuses to provide this information, you may need to find a different provider or contact your state's tax agency for guidance.