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Child and Dependent Care Credit Complete Guide for 2025-2026
In this guide we break down the Child and Dependent Care Credit for tax years 2025 and 2026. Included is a full explanation with examples, and links to our calculator and tax credit tables. Changes to it are coming because of the One Big Beautiful bill. Make sure you're up to date and claiming every credit dollar!
Child and Dependent Care Credit 2026: What’s Changing and How to Calculate It
The credit for 2025 and the last few tax years has been: 35% → 20% of eligible child and dependent care expenses. Decreasing 1% for every $2,000 of your AGI over $15,000. The Child and Dependent Care 2026 credit changes have implemented two reduction phases and a higher initial percentage eligible. It begins at 50% and similarly reduces 1% every $2,000 until it hits 35%, where it remains until the second phase-out. The second phase-out begins at $75,000 for every filing status except married filing joint, where it continues to decrease 1% every $4,000 until it hits the base of 20% credit for all incomes >= $105,000. Married Filing Joint second phase-out doesn't begin till $150,000, and decreases 1% every $4,000 until it hits the base of 20% credit for all incomes >= $210,000.
Example Scenarios: Child and Dependent Care Credit
See how the enhanced credit impacts families in different situations. Click through the tabs below to explore multiple scenarios — from one dependent to two dependents, and across different income levels.
One Dependent, Moderate Income, Single
| Year | AGI | Eligible Expenses | Applicable Percentage | Estimated Credit |
|---|---|---|---|---|
| 2025 | $50,000 | $3,000 | 20% | $600 |
| 2026 | $50,000 | $3,000 | 35% | $1,050 |
Two Dependents, Moderate Income, Married Filing Joint
| Year | AGI | Eligible Expenses | Applicable Percentage | Estimated Credit |
|---|---|---|---|---|
| 2025 | $90,000 | $6,000 | 20% | $1,200 |
| 2026 | $90,000 | $6,000 | 35% | $2,100 |
Two Dependents, Higher Income, Married Filing Joint
| Year | AGI | Eligible Expenses | Applicable Percentage | Estimated Credit |
|---|---|---|---|---|
| 2025 | $190,000 | $6,000 | 20% | $1,200 |
| 2026 | $190,000 | $6,000 | 25% | $1,500 |
In plain terms: households between $45,000 and $75,000 (or $150,000 if MFJ) will see a 35% credit return beneft instead of the typical 20%
Childcare costs keep rising, but starting in 2026, the federal Child and Dependent Care Credit is getting a boost for many families. If you’ve claimed this credit before, or are planning to for 2025 or 2026, it’s important to understand what’s changing — and how it could increase your tax savings.
Here’s the good news: the IRS has enhanced the credit’s percentage for certain income levels starting in 2026. While the maximum eligible expense limits haven’t changed ($3,000 for one qualifying individual, $6,000 for two or more, before apply the percentage reduction), the credit now applies more generously to middle-income families, thanks to an updated phaseout structure.
SEC. 70405. ENHANCEMENT OF CHILD AND DEPENDENT CARE TAX CREDIT. (a) In General.—Paragraph (2) of section 21(a) is amended to read as follows: “(2) Applicable percentage defined.—For purposes of paragraph (1), the term ‘applicable percentage’ means 50 percent— (A) reduced (but not below 35 percent) by 1 percentage point for each $2,000 or fraction thereof by which the taxpayer’s adjusted gross income for the taxable year exceeds $15,000, and (B) further reduced (but not below 20 percent) by 1 percentage point for each $2,000 ($4,000 in the case of a joint return) or fraction thereof by which the taxpayer’s adjusted gross income for the taxable year exceeds $75,000 ($150,000 in the case of a joint return).”
Effectively, this means more families will receive a higher percentage of their qualifying childcare expenses back as a tax credit. The phaseout still exists, but it’s slightly more generous for incomes between $75,000 and $150,000 (or $37,500–$75,000 for single filers in the lower bracket). Compared to the American Rescue Plan rules in 2021, the credit is still smaller — but it’s a meaningful improvement for many households.
How the 2026 Enhancement Affects Families
The enhancement keeps the maximum eligible expense amounts the same but changes the percentage of expenses that families can claim based on income:
- The credit now starts at 50% of eligible expenses.
- Families with incomes above $15,000 start seeing a gradual reduction, but the floor is now 35%.
- Higher-income families above $75,000 (or $150,000 for joint filers) see a further reduction, but it won’t drop below 20%.
What is the Child and Dependent Care Credit?
The Child and Dependent Care Credit is a tax credit designed to help families offset the costs of caring for children under 13 or dependents who are physically or mentally unable to care for themselves. Unlike a deduction, which reduces your taxable income, a credit reduces your tax bill dollar-for-dollar. That makes it especially valuable for working families.
You can claim a portion of employment-related expenses, such as daycare, after-school programs, or care for an adult dependent at home, as long as the care allows you (and your spouse, if married) to work or look for work. Note: if married filing joint, the credit
How 2026 Changes Compare to the 2021 American Rescue Plan
For context, the 2021 American Rescue Plan temporarily made the credit much more generous:
- Made the credit fully refundable, so you could receive it even if you owed no federal taxes.
- Increased the maximum expenses counted from $3,000/$6,000 to $8,000/$16,000 for one or more dependents.
- Raised the applicable percentage to 50% for all, with a much slower phaseout.
- Significantly benefited middle- and upper-middle-income families.
The 2026 enhancement isn’t as generous as 2021’s temporary rules, but it does give a modest boost to families who fall in the middle-income brackets. The key difference: the maximum eligible expense dollar limits remain $3,000 for one qualifying individual and $6,000 for two or more.
Key Limits and Eligible Expenses
- Maximum Expenses: $3,000 for one qualifying individual; $6,000 for two or more.
- Phaseout: Applicable percentage reduces gradually based on your AGI, down to a floor of 20% for higher earners.
- Qualifying Dependents: Children under 13, or dependents/spouses who cannot care for themselves and live with you for more than half the year.
- Eligible Expenses: Daycare, nanny services, adult dependent care at home, or care at a licensed facility that follows local laws.
- Non-Eligible Expenses: Overnight camps, payments to dependents under 19 or anyone you can claim as a personal exemption, and services outside your household (with some exceptions).
Filing Tips for Claiming the Credit
- Use Form 2441 when filing your federal return to calculate and claim the credit.
- Report the Taxpayer Identification Number (TIN) for each qualifying dependent.
- Report the name, address, and TIN of any care provider outside your household.
- Remember: married couples generally must file jointly to claim the credit, or you must be considered unmarried.
- Keep receipts and documentation for all qualifying expenses.
Conclusion: Maximize Your Credit in 2026
The enhanced Child and Dependent Care Credit for 2026 is a welcome update for families, especially those in the middle-income range. While it doesn’t match the temporary generosity of the 2021 American Rescue Plan, it still provides valuable tax relief for childcare and dependent care expenses.
Our interactive calculator and example scenarios show exactly how these changes affect your household. Enter your AGI, number of dependents, and eligible expenses to see your potential credit for 2025 and 2026 — then use that information to plan your finances and maximize your tax savings.
Remember: the credit reduces your federal tax bill directly, so even a few hundred dollars can make a noticeable difference in your take-home pay.
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Morgan Branford
Tax Professional and Family Finance Writer
Learn more about Morgan on the author page or connect on Linkedin.
Legal Disclaimer:
This post is for informational purposes only and does not constitute legal advice. For personalized assistance, consult a licensed family law attorney or your local legal aid agency.