Child Care Tax Credit Guide: How to Claim Up to $6,000 in 2025

Child care is one of the largest expenses for working families, but the tax code offers significant relief. Between the Child and Dependent Care Tax Credit, Dependent Care Flexible Spending Accounts, and state-level credits, families can save thousands of dollars annually on child care costs.

Unfortunately, many eligible families don't claim these benefits—either because they don't know about them or find the rules confusing. This comprehensive guide explains every federal and state child care tax benefit, walks you through how to claim them, and shows you strategies to maximize your savings.

Understanding Child Care Tax Benefits

The federal government offers two primary tax benefits for child care expenses, each with distinct rules and advantages.

The Child and Dependent Care Tax Credit

This is a direct tax credit (reducing your tax bill dollar-for-dollar) for a portion of your child care expenses.

How it works:

Track qualifying child care expenses throughout the year
Claim a percentage of expenses (20-35%) as a credit
Credit directly reduces your tax liability

Maximum expenses you can claim:

$3,000 for one qualifying child
$6,000 for two or more qualifying children

Credit percentage: The percentage depends on your Adjusted Gross Income (AGI):

| AGI Range | Credit Percentage | Max Credit (1 child) | Max Credit (2+ children) | |-----------|-------------------|---------------------|-------------------------| | $0 - $15,000 | 35% | $1,050 | $2,100 | | $15,001 - $17,000 | 34% | $1,020 | $2,040 | | $17,001 - $19,000 | 33% | $990 | $1,980 | | $19,001 - $21,000 | 32% | $960 | $1,920 | | $21,001 - $23,000 | 31% | $930 | $1,860 | | $23,001 - $25,000 | 30% | $900 | $1,800 | | $25,001 - $27,000 | 29% | $870 | $1,740 | | $27,001 - $29,000 | 28% | $840 | $1,680 | | $29,001 - $31,000 | 27% | $810 | $1,620 | | $31,001 - $33,000 | 26% | $780 | $1,560 | | $33,001 - $35,000 | 25% | $750 | $1,500 | | $35,001 - $37,000 | 24% | $720 | $1,440 | | $37,001 - $39,000 | 23% | $690 | $1,380 | | $39,001 - $41,000 | 22% | $660 | $1,320 | | $41,001 - $43,000 | 21% | $630 | $1,260 | | $43,001+ | 20% | $600 | $1,200 |

Dependent Care Flexible Spending Account (FSA)

A Dependent Care FSA allows you to pay for child care with pre-tax dollars, reducing your taxable income.

How it works:

During open enrollment, elect an amount to contribute (up to $5,000)
Contributions are deducted from your paycheck before taxes
Submit claims for reimbursement of qualifying expenses

Tax savings calculation:

| Your Tax Bracket | FSA Contribution | Federal Tax Savings | State Tax Savings (5%) | Total Savings | |------------------|------------------|--------------------|-----------------------|---------------| | 12% | $5,000 | $600 | $250 | $850 | | 22% | $5,000 | $1,100 | $250 | $1,350 | | 24% | $5,000 | $1,200 | $250 | $1,450 | | 32% | $5,000 | $1,600 | $250 | $1,850 | | 35% | $5,000 | $1,750 | $250 | $2,000 |

Note: You also save 7.65% in FICA taxes on FSA contributions, adding approximately $383 in savings.

FSA vs. Tax Credit: Which Is Better?

This is a common question with a nuanced answer.

Choose FSA if:

Your household income exceeds $43,000 (where credit drops to 20%)
Your employer offers a Dependent Care FSA
You can accurately estimate annual child care expenses
You want to save on FICA taxes (credit doesn't provide this)

Choose Tax Credit if:

Your household income is below $25,000 (35% credit rate)
Your employer doesn't offer a Dependent Care FSA
You want flexibility (FSA has use-it-or-lose-it rules)
You're uncertain about your annual child care expenses

The math for most families:

| AGI | Tax Credit (2 kids) | FSA (22% bracket) | Better Option | |-----|--------------------|--------------------|---------------| | $25,000 | $1,800 | $1,350 | Tax Credit | | $35,000 | $1,500 | $1,350 | Tax Credit | | $45,000 | $1,200 | $1,350 | FSA | | $75,000 | $1,200 | $1,700 | FSA | | $150,000 | $1,200 | $2,000+ | FSA |

Important: You can use both, but not for the same expenses. A common strategy is to use $5,000 through FSA, then claim remaining expenses (up to $1,000 for two children) via the tax credit.

Eligibility Requirements

Both benefits have specific eligibility requirements you must meet.

Qualifying Child or Dependent

For both credits/FSA:

Child under age 13, OR
Spouse who is physically or mentally unable to care for themselves, OR
Dependent who is physically or mentally unable to care for themselves

Qualifying Expenses

Eligible expenses include:

Daycare and child care centers
Preschool and nursery school
Before and after school care
Summer day camp
Nanny, au pair, or babysitter wages
Household employee taxes (your share)

NOT eligible:

Overnight camp
Kindergarten or higher education tuition
Expenses paid to your spouse or the child's parent
Expenses paid to your dependent (e.g., older child)
Payments to your child under age 19

Work-Related Requirement

Care must enable you (and your spouse, if married) to:

Work, OR
Actively look for work, OR
Attend school full-time (this counts as "work" for three months of the year)

For married couples:

Both spouses must have earned income, OR
One spouse can be a full-time student or incapable of self-care
Expenses cannot exceed the lower-earning spouse's income

"A full-time student spouse is treated as having $250/month in income (one child) or $500/month (two+ children) for purposes of calculating the limit." — IRS Publication 503

Care Provider Requirements

You must identify your care provider with:

Name
Address
Taxpayer Identification Number (SSN or EIN)

You cannot claim the credit if your provider is:

Your spouse
Parent of the qualifying child (if under 13)
Your child under age 19
Your dependent

How to Claim the Child and Dependent Care Credit

Step-by-Step Process

Step 1: Track expenses throughout the year Keep records of all child care payments:

Provider receipts or statements
Canceled checks or credit card statements
Nanny payroll records

Step 2: Gather provider information Before filing, collect from each provider:

Full legal name or business name
Complete address
SSN or EIN (Employer Identification Number)

Step 3: Complete IRS Form 2441 Form 2441, "Child and Dependent Care Expenses," is filed with your tax return.

Part I: Identify your care providers (name, address, TIN, amount paid to each)

Part II: Calculate qualifying expenses

Enter care expenses
Compare to earned income limit
Calculate credit percentage based on AGI

Part III: Calculate and enter your credit

Step 4: Enter credit on your tax return Transfer the calculated credit to:

Form 1040, Schedule 3, line 2
Then to Form 1040, line 20

Common Mistakes to Avoid

Missing provider information: The IRS will reject claims without complete provider TINs. Get this information before year-end.

Claiming expenses for school-age children: Only before/after school care qualifies—not tuition for grades K-12.

Exceeding earned income: Your credit cannot exceed your (or your spouse's lower) earned income.

Double-dipping with FSA: Expenses reimbursed through a Dependent Care FSA cannot also be claimed for the credit.

Forgetting to reduce for FSA: If you used a Dependent Care FSA, subtract those amounts from your qualifying expenses before calculating the credit.

How to Use a Dependent Care FSA

During Open Enrollment

Step 1: Estimate your annual child care costs Add up expected expenses:

Monthly care costs × 12
Summer camp
Backup care
Any other qualifying expenses

Step 2: Elect your contribution Choose an amount up to $5,000 ($2,500 if married filing separately).

Pro tip: Be conservative in your estimate. Unused FSA funds are typically forfeited.

Step 3: Understand your plan's rules

Reimbursement timing (pay-as-you-go or upfront availability?)
Grace period or carryover options?
Claim submission deadlines?

Throughout the Year

Managing reimbursements:

Pay for child care normally
Submit claims with receipts/documentation
Receive reimbursement (typically direct deposit)

Documentation needed:

Provider name and TIN
Dates of service
Amount paid
Child's name

Important difference from health FSA: Dependent Care FSAs reimburse only up to the amount you've contributed so far. Unlike health FSAs, you don't get the full annual election upfront.

Year-End Considerations

Use-it-or-lose-it: Most Dependent Care FSAs have strict use-it-or-lose-it rules. Check your plan for:

Grace period (extra 2.5 months to incur expenses)
Plan year end (calendar or fiscal?)
Claim submission deadline

If you have unused funds:

Submit all outstanding claims before deadlines
Consider prepaying January care in December (if plan allows)
Adjust next year's election if you consistently have unused funds

State Child Care Tax Credits

Many states offer additional child care tax credits on top of federal benefits.

States with Child Care Credits

| State | Credit Type | Maximum Benefit | Notes | |-------|-------------|-----------------|-------| | California | Percentage of federal credit | Up to $1,117 | Based on income | | Colorado | 50% of federal credit | Up to $1,050 | Fully refundable | | Delaware | 50% of federal credit | Up to $1,050 | Non-refundable | | District of Columbia | 32% of expenses | Up to $1,296 | Refundable for low income | | Hawaii | 25% of expenses | Up to $1,800 | For care in licensed facility | | Idaho | Percentage of federal credit | Varies | Based on income | | Iowa | 75% of federal credit | Up to $1,575 | For income under $45,000 | | Kentucky | 20% of federal credit | Up to $420 | Non-refundable | | Louisiana | Child care credit | Up to $1,050 | Based on income | | Maine | 25% of federal credit | Up to $525 | Non-refundable | | Maryland | Sliding scale | Up to $1,040 | Based on income | | Massachusetts | Percentage of expenses | Up to $1,440 | Based on income | | Minnesota | Child care credit | Up to $1,050 | Refundable | | Nebraska | 25% of federal credit | Up to $525 | Refundable under $29,000 | | New Mexico | 40% of federal credit | Up to $840 | Refundable | | New York | 110% of federal credit | Up to $2,310 | Refundable for some | | Ohio | Percentage of federal credit | Varies | Based on income | | Oregon | Working family credit | Varies | Refundable for low income | | Rhode Island | 25% of federal credit | Up to $525 | Non-refundable | | South Carolina | 7% of federal credit | Up to $147 | Non-refundable | | Vermont | 50% of federal credit | Up to $1,050 | 24% if income over $40,000 | | Virginia | Percentage of expenses | Up to $600 | Based on income |

Claiming State Credits

Check your state's requirements:

Some are automatic if you claim the federal credit
Others require separate state forms
Income limits and calculations vary

Work with your tax software or professional: Most tax software automatically calculates state credits based on your federal return information.

Maximizing Your Child Care Tax Savings

Strategy 1: Combine FSA and Tax Credit

If you have two or more children and significant child care expenses, you can use both benefits:

Example:

Total child care expenses: $12,000
Use FSA for first $5,000 → saves ~$1,500 (in 24% bracket)
Claim credit on remaining $1,000 (up to $6,000 limit minus $5,000 FSA) → saves $200
Total savings: $1,700

Strategy 2: Coordinate with Your Spouse

If both employers offer Dependent Care FSA:

You can only contribute $5,000 total between both
Doesn't matter if one spouse contributes all or you split

Optimize for employer matches: Some employers match a portion of Dependent Care FSA contributions. If one spouse has matching and the other doesn't, contribute through the matching employer.

Strategy 3: Time Major Expenses Strategically

Calendar year vs. plan year:

Tax credits are based on calendar year expenses
FSAs may have different plan years

Timing expenses:

If you have unused FSA funds, prepay January care in December
If you've maxed the FSA, pay additional expenses to claim the credit

Strategy 4: Don't Forget Employer Benefits

Beyond FSA, employers may offer:

Direct child care subsidies
Backup care programs
On-site child care at reduced rates

These reduce your out-of-pocket costs but may also reduce claimable expenses for tax benefits.

Strategy 5: Claim All Qualifying Expenses

Often overlooked qualifying expenses:

Summer day camp
Before and after school care
Preschool (even half-day programs)
Backup care and babysitters
Nanny taxes (your employer share of FICA)
Au pair stipend (but not room/board)

Special Situations

If Your Child Turns 13 During the Year

You can claim expenses only for the portion of the year before their 13th birthday.

Example: Child turns 13 on July 1

January-June care: Qualifies
July-December care: Does not qualify (unless disabled)

If You're Self-Employed

You're still eligible for both benefits, but:

You cannot offer yourself a Dependent Care FSA
Your earned income is net self-employment income
Keep meticulous records for potential audits

If You're Divorced or Separated

Custodial parent claims the credit:

The parent with whom the child lives more than half the year
Even if the other parent claims the child as a dependent

Non-custodial parent paying child care:

Cannot claim the credit even if paying the bills
Must have written agreement shifting the credit

If You Receive Dependent Care Benefits

Employer-provided benefits reduce your eligible expenses:

Subtract Dependent Care FSA reimbursements
Subtract employer-paid child care subsidies
Remainder can be used for the tax credit (up to limits)

Calculator: Estimating Your Savings

Quick Calculation Method

Step 1: Determine your total annual child care expenses

Step 2: Determine your available tools:

[ ] Dependent Care FSA available?
[ ] Marginal tax bracket: ____%
[ ] Number of qualifying children: ____

Step 3: Calculate FSA savings (if available):

Contribution (up to $5,000): $____
× (tax bracket + 7.65% FICA + state rate)
= FSA tax savings: $____

Step 4: Calculate tax credit (on remaining expenses):

Total expenses: $____
Minus FSA: $____
Compare to limit ($3,000/$6,000): $____
× credit percentage (20-35%): ____%
= Tax credit: $____

Step 5: Total savings:

FSA savings + tax credit + state credit
= Total annual savings: $____

Worked Example

Family profile:

Two children, ages 2 and 4
Annual child care costs: $24,000
AGI: $85,000 (24% federal bracket, 5% state)
Dependent Care FSA available

| Step | Calculation | |------|-------------| | FSA Contribution | $5,000 | | FSA Tax Savings | $5,000 × (24% + 7.65% + 5%) = $1,833 | | Remaining Expenses | $24,000 - $5,000 = $19,000 | | Eligible for Credit | $6,000 limit - $5,000 FSA = $1,000 | | Tax Credit | $1,000 × 20% = $200 | | State Credit (example) | 25% × $200 = $50 | | Total Savings | $2,083 |

Frequently Asked Questions

Q: Can I claim the credit if I'm a stay-at-home parent?

A: No. Both parents (or the single parent) must have earned income to claim child care credits. The exception is if you're a full-time student or incapable of self-care.

Q: My daycare doesn't give me their tax ID. What do I do?

A: Request it in writing. If they refuse, you can still claim the credit by showing you made a good faith effort (keep documentation). Enter "See attached statement" and explain your efforts.

Q: Can I claim expenses paid to my mother/sister/friend?

A: Yes, if they're not your dependent and you pay them for care. They must report the income on their taxes. Get their SSN for Form 2441.

Q: Do I need receipts to claim the credit?

A: You need to keep records, but don't submit them with your return. Keep receipts, statements, and canceled checks in case of an IRS inquiry.

Q: Can I claim summer camp?

A: Day camp, yes. Overnight camp, no. The care must enable you to work, and overnight camp is considered an overnight stay, not work-related care.

Q: My child is in kindergarten. Can I claim tuition?

A: No. Kindergarten and above is education, not care. However, before and after school care for kindergarteners does qualify.

Conclusion

Child care tax benefits can save working families $1,000-$3,000 or more annually—but only if you know how to claim them. The key points to remember:

Use both benefits strategically. For most families above $43,000 income, the Dependent Care FSA saves more than the tax credit alone. Use both when expenses exceed $5,000.

Keep good records. Track all payments and get provider tax IDs before year-end.

Don't leave money on the table. Include all qualifying expenses—summer camp, backup care, and nanny taxes are often overlooked.

Check state benefits. Your state may offer additional credits worth hundreds of dollars.

Plan ahead. Elect FSA amounts during open enrollment based on realistic expense estimates.

Child care is expensive, but smart use of these tax benefits puts real money back in your pocket—money that can go toward your child's care, education, or your family's financial goals.

Want to reduce child care costs further? Explore our guides on how to afford child care, child care costs by type, and free preschool programs. Questions? Contact us for personalized guidance.