Working parents who pay for daycare, an in-home nanny, or similar care so they can work may qualify for a federal tax credit that reduces their tax bill dollar-for-dollar. The Child and Dependent Care Tax Credit (CDCTC) covers a percentage of qualifying care expenses paid during the year and is claimed on Form 2441.
How the Credit Is Calculated
CalculationQualifying Expenses: Capped at $3,000 for one qualifying person, or $6,000 for two or more; reduced dollar-for-dollar by any Dependent Care FSA contributions
Multiplied by Credit Percentage: 35% at AGI of $15,000 or below; drops 1% per $2,000 of AGI above $15,000; floors at 20% for AGI above $43,000
Maximum Credit: $1,050 for one qualifying person (35% x $3,000) or $2,100 for two or more (35% x $6,000)
Who Is a Qualifying Person?
A qualifying person must meet one of the following:
- A child under age 13 whom you can claim as a dependent on your return
- A spouse who is physically or mentally incapable of self-care and lived with you for more than half the year
- Any other dependent of any age who is physically or mentally incapable of self-care and lived with you for more than half the year
The incapable-of-self-care standard means the person cannot dress, bathe, or feed themselves due to a physical or mental condition. Simply having a disability is not enough on its own.
What Expenses Qualify?
Qualifying care expenses are amounts paid so that you (and your spouse, if married) can work or actively look for work. Common qualifying expenses include:
- Licensed daycare centers and preschool programs
- After-school care and summer day camps (day camps only, not overnight)
- In-home care: nannies, babysitters, au pairs
- Care at a relative's home, as long as that relative is not your dependent
Amounts paid to your spouse, the qualifying child's other parent, or a person you claim as a dependent do not qualify. Education costs for kindergarten and above are excluded. Overnight camps do not qualify.
The Work-Related Expense Requirement
Both spouses must have earned income during the period of care, or be actively looking for work. One exception: a spouse who is a full-time student or physically or mentally incapable of self-care is treated as having earned income of $250 per month for one qualifying person (or $500 per month for two or more). This keeps the credit available for families where one spouse is in school or unable to work due to disability.
How a Dependent Care FSA Affects the Credit
Pretax Dependent Care FSA (DCFSA) contributions reduce the CDCTC expense cap dollar-for-dollar:
Scenario: One qualifying child, $5,000 in annual daycare costs, $3,000 DCFSA contribution. The $3,000 cap for one qualifying person is fully offset by the $3,000 FSA contribution, leaving $0 in eligible expenses for the credit.
If your care costs exceed your FSA contributions, the remaining balance (up to the $3,000 or $6,000 cap) can still qualify for the credit. A DCFSA typically delivers more tax value because it reduces both federal income tax and payroll taxes, while the CDCTC only offsets income tax. For a full breakdown of how the FSA works, see our guide to the Dependent Care FSA.
Key Numbers for 2026
| One Qualifying Person | Two or More | |
|---|---|---|
| Expense cap | $3,000 | $6,000 |
| Max credit (35%) | $1,050 | $2,100 |
| Max credit (20%) | $600 | $1,200 |
- Refundable? No. The credit reduces tax to zero but does not generate a refund
- Filing status: Single, head of household, and married filing jointly all qualify; married filing separately generally cannot claim
- Form: 2441, filed with Form 1040
- Provider information: Name, address, and EIN (or SSN for individuals) required for each care provider
Example Calculation
Facts: AGI $60,000, two children in daycare, $8,000 total care costs for the year, no DCFSA.
- Expense cap is $6,000 (two qualifying persons). Actual costs of $8,000 exceed the cap, so the credit is based on $6,000.
- AGI of $60,000 is above $43,000, so the credit percentage is 20%.
- Credit = $6,000 x 20% = $1,200.
If this same family had a $5,000 DCFSA, the eligible expense would drop to $1,000 ($6,000 cap minus $5,000 FSA), and the credit would be $200. The DCFSA already delivered its own tax benefit on $5,000 of pretax income.
To see how the CDCTC and dependent care FSA fit into your overall tax picture, contact TS CPA. We respond the same day.