U.S. Department of the Treasury

Office of Tax Analysis

January 14, 2020

Estimated Benefit from the Child and Dependent Care Credit and 

Dependent Care Flexible Spending Accounts

Taxable Year 2020

Taxpayers with child or dependent care expenses who are working or looking for work are 

eligible for a nonrefundable tax credit that partially offsets these expenses. Married couples are 

eligible only if they file a joint return and either both spouses are working or looking for work, or 

if one spouse is working or looking for work and the other is attending school full-time. To 

qualify for this benefit, the child and dependent care expenses must be for either (1) a child under 

age 13 when the care was provided or (2) a disabled dependent of any age with the same place of 

abode as the taxpayer. Any allowable credit is reduced by the aggregate amount excluded from 

income under a dependent care assistance program.

Eligible taxpayers may claim the credit for up to 35 percent of up to $3,000 in eligible expenses 

for one child or disabled dependent and up to $6,000 in eligible expenses for more than one child 

and/or disabled dependent (child) for a statutory maximum credit of $1,050 for taxpayers with 

one child and $2,100 for taxpayers with two or more children. The percentage of expenses for 

which a credit may be taken is reduced by 1 percentage point for each $2,000 by which the 

taxpayer’s adjusted gross income (AGI) exceeds $15,000 until the percentage of eligible 

expenses reaches 20 percent (at an AGI of $43,000). Thus, taxpayers with AGI of $43,000 or 

more may claim a maximum credit of $600 for one child and $1,200 for two or more children.

The phase-down thresholds and the amount of expenses eligible for the credit are not indexed for 

inflation and have not changed since 2003.

Taxpayers may also be offered dependent care assistance through their employers. Up to $5,000 

in employer assistance or employee contributions to a flexible spending account (FSA) may be 

excluded from employee wages for both income and payroll tax purposes.1 The maximum 

amount of expenses that may be used to claim the CDCTC must be reduced by any amount of 

employer assistance that is excluded from wages. 

This document presents three tables that show the support families receive from these provisions 

for 2020. The estimates do not include dependent filers, and they ignore changes in tax of less 

than $5. Benefits are estimated using Treasury’s Individual Tax Model (ITM). The ITM takes a 

stratified random sample of tax returns from a base year, forecasts the values of line items on the 

tax returns for 2021, and applies a very detailed tax calculator to analyze how changes in the tax 

system affect tax liability. The tables show the combined benefit from the CDCTC and the child 

and dependent care FSA, and then each of the benefits separately. Results are shown for tax 

units, which consist of all individuals on a given tax return. In some cases, membership is 

identical to the household or family, but in other cases membership will differ.

The tables answer the questions: “How many tax units benefit, what is the total amount of 

benefit, and what is the average benefit per return?” The provisions are explored individually and 

1 The CDCTC does not affect payroll tax liability. The child and dependent care FSA affects income tax liability and 

payroll tax liability. 
2

U.S. Department of the Treasury

Office of Tax Analysis

January 14, 2020

in combination. The amount of benefit is calculated by comparing estimated tax liability to what 

estimated tax liability would be in absence of the provision(s) in question (but with the law 

otherwise unchanged). The tables present the effect on income and payroll tax liability. Tax units 

are classified based on current law adjusted gross income. A tax unit is considered to benefit if 

the increase to the sum of their income tax liability and their employee payroll tax liability 

exceeds $5 when the benefit (or combination of benefits) is repealed.

Because this analysis is about tax calculations and not about behavioral changes, we do not add 

back the employer portion of the payroll tax to individual wages. These amounts would show up 

on the returns of the employers and not the employees. So that all tax dollars are accounted for 

(subject to the $5 per return change), the employer portion is shown on a separate line on the 

bottom of the relevant tables.
3

U.S. Department of the Treasury

Office of Tax Analysis

January 14, 2020

Table 1

Estimated Income and Payroll Tax Benefit from

the Child and Dependent Care Tax Credit (CDCTC) and 

the Flexible Spending Account Exclusion (FSA)1

Tax Year 2020

Adjusted Tax Units Total Average

Gross Income Benefitting3 Benefit Benefit

($) (Thousands) ($Millions) ($)

0 - 15,000 3 2 659

15,001 - 30,000 213 63 297

30,001 - 40,000 515 246 477

40,001 - 50,000 537 296 551

50,001 - 60,000 464 272 587

60,001 - 75,000 596 377 633

75,001 - 100,000 886 580 654

100,001 - 200,000 2,231 1,840 825

200,001 - 500,000 1,031 1,058 1,026

500,001 - 1,000,000 153 208 1,361

1,000,001 - 5,000,000 39 51 1,329

over 5,000,000 2 3 1,364

Total2 6,672 4,996 749

Total including the employer portion of payroll tax (excludes returns with a change of less than 

$5):

6,675 5,302 794

Office of Tax Analysis Jan 14, 2020

1 The table includes the effect of the income tax and the employee portion of the payroll tax. 

The total, including the employer portion of the payroll tax, is included in the last line

2 Returns with negative income are excluded from the lowest income class but included in the 

total line. Dependent returns are excluded from the calculations. Returns with a tax change of at 

least $5 are included in the calculations. 

3 A small number of returns with qualified dependents over the age of 13 are included. Disabled 

children and relatives are not subject to the age limitation.
4

U.S. Department of the Treasury

Office of Tax Analysis

January 14, 2020

Table 2

Estimated Income Tax Benefit from

the Child and Dependent Care Tax Credit (CDCTC)

Tax Year 2020

Adjusted Tax Units Total Average

Gross Income Benefitting1,2 Benefit Benefit

($) (Thousands) ($Millions) ($)

0 - 15,000 0 0 757

15,001 - 30,000 183 55 300

30,001 - 40,000 483 233 482

40,001 - 50,000 506 279 551

50,001 - 60,000 434 247 569

60,001 - 75,000 547 323 591

75,001 - 100,000 816 470 576

100,001 - 200,000 1,931 1,136 589

200,001 - 500,000 814 462 567

500,001 - 1,000,000 115 67 583

1,000,001 - 5,000,000 29 19 647

over 5,000,000 2 1 708

Total3 5,859 3,292 562

Office of Tax Analysis Jan 14, 2020

1 The table includes only the income tax effect because there is no interaction of the CDCTC and the 

payroll tax.

2 A small number of returns with qualified dependents over the age of 13 are included. 

Disabled children and relatives are not subject to the age limitation.

3 Returns with negative income are excluded from the lowest income class but included in the total line. 

Dependent returns are excluded from the calculations. Returns with a tax change of at least $5 are 

included in the calculations. 
5

U.S. Department of the Treasury

Office of Tax Analysis

January 14, 2020

Table 3

Estimated Income and Payroll Tax Benefit from

the Child and Dependent Care Flexible Spending Account (FSA)1

Tax Year 2020

Adjusted Tax Units Total Average

Gross Income Benefitting3 Benefit Benefit

($) (Thousands) ($Millions) ($)

0 - 15,000 3 2 658

15,001 - 30,000 30 8 257

30,001 - 40,000 36 10 290

40,001 - 50,000 40 10 238

50,001 - 60,000 37 9 252

60,001 - 75,000 67 24 359

75,001 - 100,000 122 48 393

100,001 - 200,000 639 387 606

200,001 - 500,000 491 324 660

500,001 - 1,000,000 86 91 1,061

1,000,001 - 5,000,000 20 23 1,128

over 5,000,000 1 2 1,289

Total2 1,575 938 596

Total including the employer portion of payroll tax (excludes returns with a change of less than 

$5):

1,666 1,243 746

Office of Tax Analysis Jan 14, 2020

1 The table includes the effect of the income tax and the employee portion of the payroll tax. 

The total, including the employer portion of the payroll tax, is included in the last line

2 Returns with negative income are excluded from the lowest income class but included in the 

total line. Dependent returns are excluded from the calculations. Returns with a tax change of at 

least $5 are included in the calculations. 

3 A small number of returns with qualified dependents over the age of 13 are included. Disabled 

children and relatives are not subject to the age limitation.