What the Child and Dependent Care Credit Covers

The Child and Dependent Care Credit offsets the cost of care for a child under 13 (or a disabled spouse or dependent of any age) so you can work or look for work. Unlike the Child Tax Credit, this one is tied directly to what you spend on childcare — daycare, babysitters, preschool, and summer day camp all count. For 2026, the credit covers up to $3,000 of expenses for one dependent and $6,000 for two or more.

The credit is 20% to 35% of those expenses, depending on your AGI. Most filers land at the 20% rate, which applies once AGI exceeds $43,000. That makes the practical maximum $600 for one dependent and $1,200 for two — modest, but worth claiming on top of every other credit.

Qualifying Expenses in Plain English

ExpenseQualifies?
Daycare centerYes
In-home babysitter (for work hours)Yes
Nursery school / preschoolYes
Before- and after-school careYes
Summer day camp (sports, specialty, general)Yes
Overnight campNo
Kindergarten and up (tuition)No
Care by your spouse or a dependentNo
Care by your child under age 19No

The care must enable you to work. If you pay a babysitter for a date night, that is not a qualifying expense. If you pay a nanny so you can run your consulting business from home, that qualifies.

Pro Tip: Track childcare payments as they happen. Ask the daycare or nanny for their tax ID before the year ends — chasing a provider's SSN in April is the single most common delay I see on Form 2441. A simple spreadsheet with date, amount, and provider name keeps the credit defensible if the IRS asks.

The Credit Rate and the AGI Threshold

The 35% rate applies to filers with AGI of $15,000 or less, and the rate drops by 1 percentage point for each $2,000 of additional AGI until it floors at 20% for AGI above $43,000. A self-employed parent with $80,000 of Schedule C net profit and two kids in daycare receives 20% of $6,000 = $1,200.

The credit is non-refundable, meaning it offsets tax liability but cannot generate a refund on its own. A family with $5,000 of tax liability easily uses the full $1,200. A family with $800 of tax liability loses $400 of the credit.

The Earned Income Requirement for Self-Employed

The credit requires earned income from both spouses (if married). Self-employment net profit counts as earned income, but a net loss does not. A married couple where one spouse earns $50,000 freelancing and the other stays home with the kids cannot claim the credit — the non-working spouse has zero earned income, which caps qualifying expenses at zero.

The exception is if the non-working spouse is a full-time student or disabled, in which case the IRS treats them as having $250 of earned income per month ($500 for two or more dependents). Run your Schedule C profit through the Self-Employment Tax Calculator and confirm both spouses have earned income before claiming the credit.

IRS Warning: Paying a nanny or babysitter cash under the table without reporting it disqualifies the credit and can trigger household employment tax obligations. If you paid a household employee $2,700 or more in 2026, you owe nanny tax (Schedule H) — Social Security, Medicare, and federal unemployment. File properly and keep the credit; skip the paperwork and you lose both.

Nanny Taxes and the Credit Together

Hiring a nanny creates household employer obligations — Schedule H, Form W-2, and federal unemployment tax. The good news is that the wages you report for nanny taxes are the same wages that qualify for the Child and Dependent Care Credit. Filing Schedule H properly preserves the credit; failing to file disqualifies it and exposes you to back taxes and penalties. A payroll service like Gusto Nanny or HomePay handles the paperwork for about $50 per month.

The Bottom Line

The Child and Dependent Care Credit returns 20% to 35% of up to $3,000 in childcare expenses for one dependent ($6,000 for two or more), capping at $600 to $1,200 for most filers. Self-employed parents qualify on Schedule C net profit, but both spouses need earned income. Track every payment, get the provider's tax ID up front, and file Form 2441 with your return. Confirm your earned income with the Self-Employment Tax Calculator and identify business deductions with the Tax Deduction Finder so your net profit supports both the credit and your SE-tax planning.