Legal Definitions - child- and dependent-care tax credit

The child- and dependent-care tax credit is a provision in tax law that allows taxpayers to reduce their federal income tax liability dollar-for-dollar by a percentage of expenses paid for the care of a qualifying child or dependent.

To qualify for this credit, the care expenses must be incurred to enable the taxpayer (and their spouse, if filing jointly) to work or actively look for work. A "qualifying individual" for this credit typically includes:

• A child under the age of 13 for whom the taxpayer can claim an exemption.
• A spouse or other dependent who is physically or mentally incapable of self-care and lives with the taxpayer for more than half the year.

The credit amount is a percentage of the care expenses, up to a certain maximum, and the percentage varies based on the taxpayer's adjusted gross income.

Examples:

• Scenario 1: Dual-Income Family with Young Children

  Maria and David are married and both work full-time. They have two children, ages 4 and 7, who attend a licensed daycare facility five days a week while Maria and David are at their jobs. The annual cost for this daycare is significant.

  How it illustrates the term: The expenses Maria and David pay for the daycare are directly necessary for both of them to maintain their employment. Both children are under 13 and qualify. Therefore, a portion of their daycare costs can be used to calculate their child- and dependent-care tax credit, directly reducing the amount of income tax they owe.

• Scenario 2: Single Parent with a Child and an Incapacitated Adult Dependent

  Sarah is a single mother who works full-time. She pays for an after-school program for her 10-year-old daughter. Additionally, Sarah's elderly mother, who is physically disabled and requires constant supervision, lives with her. Sarah employs a home health aide to care for her mother during her work hours.

  How it illustrates the term: Both the after-school care for Sarah's 10-year-old daughter (a qualifying child under 13) and the home health aide for her incapacitated mother (a qualifying dependent unable to care for herself) are essential expenses that enable Sarah to work. These combined expenses would be considered when calculating her child- and dependent-care tax credit.

• Scenario 3: Part-time Worker Actively Seeking Full-time Employment

  Mark is a single father of a 6-year-old son. He works part-time and is actively looking for a full-time job. To allow him to attend job interviews and work his shifts, Mark pays for his son to attend a before- and after-school program.

  How it illustrates the term: The expenses Mark incurs for his son's care are necessary for him to both work part-time and actively search for full-time employment. Since his son is under 13, these expenses qualify for the child- and dependent-care tax credit, helping Mark offset some of the costs associated with his job search and current work.