There are two tax provisions that subsidize the child and dependent care expenses of working parents: the child and dependent care tax credit (CDCTC) and the exclusion for employer-sponsored child and dependent care. This report provides a general overview of these two tax benefits, focusing on eligibility requirements and benefit calculation. The report also includes some summary data on these benefits which highlight some of the characteristics of claimants. The child and dependent care tax credit is a nonrefundable tax credit that reduces a taxpayer's federal income tax liability based on child and dependent care expenses incurred so the taxpayer can work or look for work. Since the credit (sometimes referred to as the child care credit or the CDCTC) is nonrefundable, the amount of the credit cannot exceed a taxpayer's federal income tax liability. Taxpayers with little or no federal income tax liability—including many low-income taxpayers—generally receive little if any benefit from nonrefundable credits like the CDCTC. To claim the child and dependent care credit, a taxpayer must meet a variety of eligibility criteria. The taxpayer must have qualifying expenses for a qualifying individual, have earned income, and file taxes with an allowable filing status. These are defined briefly below. Qualifying expenses: Qualifying expenses are generally defined as expenses incurred for the care of a qualifying individual so that a taxpayer (and their spouse, if filing jointly) can work or look for work. Payments made to a relative for child and dependent care may be eligible for the credit, unless the relative is the taxpayer's dependent, child under 19 years old, spouse, or the parent of a qualifying child. Taxpayers claiming the CDCTC generally must provide the name, address, and taxpayer identification number of any person or organization that provides care for a qualifying individual. Q ualifying individual: A qualifying individual for the CDCTC is either (1) the taxpayer's dependent child under 13 years of age, or (2) the taxpayer's spouse or dependent who is incapable of caring for himself or herself. Earned income : A taxpayer must have earned income to claim the credit. The amount of qualifying expenses claimed for the credit cannot be greater than the taxpayer's earned income for the year (or the earned income of the lower-earning spouse in the case of married taxpayers). For married couples filing jointly, both spouses must have earnings unless one is either a student or incapable of self-care. T axes filed with an allowable filing sta tus: Taxpayers are generally ineligible for the CDCTC if they file their taxes as "married filing separately." Qualifying expenses for the credit are generally defined as expenses for the care of a qualifying individual so that a taxpayer (and their spouse, if filing jointly) can work or look for work. An expense is not considered work-related merely because a taxpayer paid or incurred the expense while working or looking for work. The purpose of the expense must be to enable the taxpayer to work or look for work. Whether an expense has such a purpose is dependent on the facts and circumstances of each particular case. These expenses can include those for providing care for a qualifying individual or individuals both in and outside the taxpayer's home. In-home care expenses include costs of care provided in the taxpayer's home such as the cost of a nanny to look after a child or a housekeeper to look after an elderly parent. The payroll taxes associated with these services, as well as meals and lodging provided to the caregiver as part of their employment, may be qualifying expenses. For household services that are in part for the care of qualifying individuals and in part for other purposes, generally only the portion for the care of a qualifying individual can be applied to the credit. There are different types of care provided outside the taxpayer's home that may be considered qualifying expenses for the purposes of the credit. To qualify, the care must be provided to the taxpayer's dependent child under age 13 or another qualifying person who regularly spends at least eight hours each day in the taxpayer's home (in other words, a nonchild dependent must generally live with the taxpayer even if that dependent spends the day at a care facility). This means, for example, that care provided at a live-in nursing home for a taxpayer's parent or spouse is not a qualifying expense. Common types of qualifying out-of-home care expenses include the following: Dependent care center: Care provided at a "dependent care center" can be considered a qualifying expense only if the center complies with all state and local regulations. A dependent care center is defined as a facility that provides care for more than six people (other than those who may reside at the facility) and receives a payment or grant for providing care services. Pre-K e ducation /Before- and a fter - s chool c are: Expenses for education below the kindergarten level (e.g., nursery school or preschool) may be qualifying expenses for the credit. Treasury regulations provide that expenses for education at the kindergarten level or higher do not qualify for the credit, and neither does summer school or tutoring expenses. However, before- or after-school care of a child in kindergarten or higher grades may be a qualifying expense. Day camp : Day camp may be a qualifying expense. However, overnight camp is not a qualifying expense. Transportation: Transportation by a care provider (i.e., not the taxpayer) to take a qualifying individual to or from a place where care is provided may be a qualifying expense. For example, the cost of a nanny driving a child to a day care center may be considered a qualifying expense. Payments made to a relative for child and dependent care are generally eligible for the credit. However, payments made to the following types of relatives would not be eligible for the CDCTC. Taxpayer's dependent: the relative is the taxpayer's dependent (i.e., the taxpayer or spouse is eligible to claim the relative for the dependent exemption). Child under 19 years old: the relative is the taxpayer's child and under 19 years old (irrespective of whether they are the taxpayer's dependent). Spouse: the relative is the taxpayer's spouse at any time during the year. Parent of a qualifying child: The relative is the parent of the qualifying child for whom the expenses are incurred. Taxpayers claiming the CDCTC generally must provide the name, address, and taxpayer identification number of any individual or entity that provides care for a qualifying individual or the IRS may deny the taxpayer's claim for the credit. Taxpayer identification numbers for individuals are either Social Security numbers (SSNs) or individual taxpayer identification numbers (ITINs). Entities' taxpayer identification numbers are generally employer identification numbers (EINs). Taxpayers are only required to provide the name and address (i.e., not the ITIN) of a care provider that is a tax-exempt 501(c)(3) organization. If a care provider refuses to provide information (e.g., an individual does not wish to provide the taxpayer with their SSN), the taxpayer can generally still claim the credit if they exercise due diligence in attempting to obtain the information and keep a record of their attempt to secure this information. For the purposes of the child and dependent care credit, a qualifying individual is a Young child : The taxpayer's dependent child under 13 years of age. Specifically, the child must be the taxpayer's "qualifying child" for purposes of claiming the personal exemption with the additional requirement that the child be 12 years or younger when the qualifying expenses were paid or incurred. (For more information on what a "qualifying child" is for the personal exemption, see the Appendix . Note that while the personal exemption is zero dollars from 2018 through 2025, the definition of a "qualifying child" for the personal exemption is still in effect. ) Spouse i ncapable of c aring for t hemselves: The taxpayer's spouse who is physically or mentally incapable of self-care and has lived with the taxpayer for more than half the year. Incapable of self-care means that the individual cannot care for their own hygiene or nutritional needs or requires full-time attention for their own safety or the safety of others. Other d ependent s i ncapable of c aring for t hemselves: An individual who is physically or mentally incapable of self-care (as defined above), lived with the taxpayer for more than half of the year, and is either a. The taxpayer's dependent (i.e., the taxpayer could claim a personal exemption for the individual); or is b. An individual who the taxpayer could have claimed as a dependent (for the personal exemption) except that i. He or she has gross income that equals or exceeds the personal exemption amount, ii. He or she files a joint return, or iii. The taxpayer (or their spouse, if filing jointly) could be claimed as a dependent on another taxpayer's return. Examples of individuals who may fall into this category include adult children who cannot care for themselves, as well as elderly relatives who live with the taxpayer. The taxpayer must provide the taxpayer identification number—either a Social Security number (SSN), individual taxpayer identification number (ITIN), or adoption taxpayer identification number (ATIN)—of each qualifying individual for whom they claim the CDCTC. Failure to do so can result in the denial of the credit. In order to claim the credit, a taxpayer (and if married, their spouse) must have earned income during the year. For taxpayers who do not work as a result of the taxpayer (or if married, their spouse) being incapable of self-care or a full-time student, special rules apply in calculating their annual earned income (see " Deemed Income in Cases Where an Individual is Incapable of Self-Care or a Full-Time Student. "). Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment.