Guide to the Child and Dependent Care Credit

If you pay care expenses for a dependent child or adult in your household, you may be eligible for the child and dependent care credit. Under the One Big Beautiful Bill Act (OBBBA), this credit became even more generous starting in 2026—with the maximum credit percentage rising from 35% to 50%.

In the following guide, we cover everything you need to know about the child and dependent care credit (CDCC) for the 2026 tax year, including what it is, who and what expenses qualify, how much the credit is worth under the new rules, and how to claim it. Keep reading to learn more.

What Is the Child and Dependent Care Credit?

The Child and Dependent Care Credit (CDCC) is a tax credit for parents or caregivers designed to help alleviate the financial burden of paying for the care of a qualified dependent, child or adult.

It is not to be confused with the Child Tax Credit (CTC), which is a separate federal tax credit worth up to $2,200 per qualifying child under the age of 17 for 2026. The CDCC exists specifically to benefit caregivers who work or are looking for work and who also pay care expenses.

The CDCC is a nonrefundable credit, meaning it can reduce your tax liability to zero but will not generate a refund beyond what you have already paid in taxes.

What Changed for the Child and Dependent Care Credit in 2026?

The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, made permanent and significant enhancements to the CDCC starting in 2026. Here are the key changes:

Maximum credit percentage increased from 35% to 50% — Families with lower incomes can now recover up to half of their qualifying childcare expenses as a tax credit
Expense limits remain unchanged — You can still claim up to $3,000 for one qualifying dependent or $6,000 for two or more
New income phaseout tiers — The AGI thresholds at which the credit percentage begins to decrease have been restructured (see the credit amount section below)
Dependent Care FSA limit increased — If your employer offers a dependent care flexible spending account (DCFSA), the annual exclusion limit has increased from $5,000 to $7,500 ($3,750 for married filing separately)

Who Qualifies as a Taxpayer for the Child and Dependent Care Credit?

In order to claim the Child and Dependent Care Credit, you (and your spouse if filing jointly) must have earned income throughout the year.

The IRS defines earned income as “wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment.” Earned income also includes “strike benefits and any disability pay you report as wages.”

Here’s what is not considered earned income:

Amounts excluded as foreign earned income on Form 2555
Pensions and annuities
Social security and railroad retirement benefits
Workers’ compensation
Interest and dividends
Unemployment compensation
Scholarships or fellowship grants, except for those reported on Form W-2 and paid to you for teaching or other services
Nontaxable workfare payments
Child support payments received
Income of a nonresident alien that isn’t effectively connected with a U.S. trade or business
Any amount received for work while an inmate in a penal institution

If your spouse is a full-time student or is physically or mentally unable to care for themselves, they are treated as having earned income for each month they are a student or are incapable of self-care. The bottom line is you (and your spouse if filing jointly) must have earned income for the year. Now let’s identify who qualifies as a dependent for the credit.

Who Qualifies as a Dependent for the Child and Dependent Care Credit?

According to the IRS, in order to qualify as a dependent for the Child and Dependent Care Credit, a person must be:

Your child who is your dependent and who was under the age of 13 when the care was provided
Your spouse who wasn’t physically or mentally able to care for himself or herself and lived with you for more than half the year
A person who wasn’t physically or mentally able to care for himself or herself, lived with you for more than half the year, and either:
- was your dependent, or
- would have been your dependent except that
  - He or she received gross income of $5,300 or more,
  - He or she filed a joint return, or
  - You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s tax return

Additional qualifications and rules apply for special circumstances, such as in the case of newborns, children who turn 13 during the tax year, and people who are divorced or separated. Refer to IRS Publication 503 for the latest information regarding qualifying persons, expenses, and more. Now that we have defined who qualifies as a taxpayer and as a dependent for the Child and Dependent Care Credit, let’s take a look at what expenses are eligible.

What Expenses Qualify for the Child and Dependent Care Credit?

Here are some examples of care-related costs that qualify for the Child and Dependent Care Credit:

Childcare through a childcare center, daycare, preschool, early learning center, or other out-of-home care facilities
Care provided by a nanny, neighbor, or relative (except a spouse, dependent, or child of the taxpayer under the age of 19)
Before- and after-school care
Day camp
Transportation that a care provider takes with the qualifying dependent, such as bus, taxi, or subway
Application/registration fees and deposits

Care-related costs that do not qualify for the credit include:

Payments of child support
Costs for kindergarten and above grades
Tutoring
Summer school
Sleepaway camps
Food, lodging, clothing, education, or entertainment, unless these costs are nominal and part of a childcare program

If you and your dependent qualify, and if your care expenses are eligible, then you will want to know how much the credit is worth.

How Much Is the Child and Dependent Care Credit Worth in 2026?

Thanks to the OBBBA, the CDCC is now worth more for many families. The credit is calculated as a percentage of your qualifying expenses, and that percentage depends on your adjusted gross income (AGI). For 2026, the credit ranges from 20% to 50% of up to $3,000 for one qualifying dependent or up to $6,000 for two or more qualifying dependents.

Here’s how the credit percentage works based on your AGI:

AGI of $15,000 or less: 50% credit rate (the maximum)
AGI of $15,001 to $43,000: Credit rate phases down from 50% to 35% (drops 1 percentage point for every $2,000 of AGI over $15,000)
AGI of $43,001 to $75,000 (single) or $86,001 to $150,000 (married filing jointly): Credit rate stays at 35%
AGI over $75,000 (single) or over $150,000 (married filing jointly): Credit rate phases down from 35% toward 20% (drops 1 percentage point per $2,000 for single filers, or per $4,000 for joint filers)
AGI over $103,000 (single) or over $206,000 (married filing jointly): Credit rate floors at 20% (the minimum)

Number of Dependents	Maximum Qualified Expenses	Adjusted Gross Income (AGI)	Credit Percentage	Maximum Credit
1	Up to $3,000	$15,000 or less	50%	$1,500
		$43,001 – $75,000 (single) $86,001 – $150,000 (MFJ)	35%	$1,050
		Over $103,000 (single) Over $206,000 (MFJ)	20%	$600
2+	Up to $6,000	$15,000 or less	50%	$3,000
		$43,001 – $75,000 (single) $86,001 – $150,000 (MFJ)	35%	$2,100
		Over $103,000 (single) Over $206,000 (MFJ)	20%	$1,200

For high earners, the minimum credit is $600 for one qualified dependent and $1,200 for two or more qualified dependents. For the lowest-income families, the maximum credit is now $1,500 for one dependent and $3,000 for two or more—a significant increase from prior years.

Child and Dependent Care Credit vs. Dependent Care FSA

If your employer offers a dependent care flexible spending account (DCFSA), you may be able to achieve greater tax savings than the CDCC provides. Starting in 2026, the DCFSA annual exclusion limit has increased from $5,000 to $7,500 ($3,750 for married filing separately). This allows you to set aside more pre-tax dollars for eligible childcare expenses.

However, you cannot use the same qualifying expenses for both the CDCC and the DCFSA exclusion. The best option for your situation will depend on the number of your qualified dependents, the total cost of eligible expenses, and your income tax bracket. In many cases, higher-income families benefit more from the DCFSA, while lower-income families benefit more from the CDCC’s higher credit percentages under the new law.

How to Claim the Child and Dependent Care Credit

If you have determined you and your dependent(s) are qualified to receive the CDCC, you must submit Form 2441, Child and Dependent Care Expenses, when you file your federal income taxes. You will need to provide the care provider’s name, address, and identifying number (either their Social Security number or taxpayer identification number). You will also need to provide your qualified dependent’s name, Social Security number, and the qualified expenses related to their care. The second part of the form helps you calculate the correct amount of your credit.

Tip for early childhood education providers: Parents of children enrolled in your program will need your business name, address, and EIN to claim this credit. Providing this information proactively—such as on year-end tax statements—helps your families maximize their tax benefits and builds trust with the parents you serve.

Honest Buck Accounting offers professional tax and accounting services for Early Childhood Education businesses. For more information about tax credits and deductions, including the child and dependent care credit, reach out to speak with one of our experts. Contact us today!