The Child and Dependent Care Tax Credit (CDCTC) is a tax credit that helps working families pay expenses for the care of children, adult dependents or an incapacitated spouse. Families can claim up to $3,000 in dependent care expenses for one child/dependent and $6,000 for two children/dependents per year. The credit is worth between 20 percent and 35 percent of these expenses, depending on a family’s income. Eligible families with adjusted gross income (AGI) of $15,000 or less can claim 35 percent of these expenses for a maximum potential credit of $2,100. The percentage of expenses a family can claim steadily decreases as income rises, until families with AGI of $43,000 or more reach the minimum claim rate of 20 percent, qualifying for a maximum potential credit of $1,200.
The current CDCTC benefits are a result of an expansion in the 2001 tax cuts that were extended through December 31, 2012 as part of H.R. 4853, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.
President Obama proposed further expanding the credit in his 2011 and 2012 budgets, and then again in a 2015 proposal1 to help middle class working families cover the rising cost of child care. The 2015 expansion proposal would triple the maximum CDCTC for families with children under 5, increasing it to $3,000 per child. These families could claim a 50 percent credit for up to $6,000 of expenses per child under 5 – covering up to half the cost of child care for preschool age children. The proposal would also make the full credit available to most middle-class families. Under current law, almost no families qualify for the maximum CDCTC. The President’s proposal would make the maximum credit – for young children, older children, and elderly or disabled dependents – available to families with incomes up to $120,000. Expansions proposed by others have included changes such as making the credit refundable, increasing the allowable expense limits and indexing the expense amounts to inflation.2 These types of improvements to the CDCTC would provide greater relief to low- and moderate-income families.
Unlike the Earned Income Tax Credit and the Child Tax Credit, the CDCTC is non-refundable. This means that if a family does not earn enough money to owe federal income taxes, it cannot benefit from the credit. Currently, 24 states have enacted state CDCTCs and of those, 8 are at least partially refundable.
For more information on the federal CDCTC see:
Paying for Child Care? The Child and Dependent Care Credit Could Help, Center on Budget and Policy Priorities, 2010
Quick Facts: Child and Dependent Care Tax Credit (CDCTC), Tax Policy Center, 2010
Taxation and the Family: How Does the Tax System Subsidize Child Care Expenses? Elaine Maag, Tax Policy Center, August 2011
For more information on state CDCTCs see:
Making Care Less Taxing: Improving State Child and Dependent Care Tax Provisions, National Women’s Law Center, April 2011
Making the Grade for Care: Ranking State Child and Dependent Care Tax Provisions, National Women’s Law Center, April 2011
1 “FACT SHEET: A Simpler, Fairer Tax Code That Responsibly Invests in Middle Class Families, The White House, January 2015
2 “An Expanded and Refundable Child and Dependent Care Tax Credit Would Help Make Child Care More Affordable for Millions of Families,” National Women’s Law Center, November 2009