Employee Child Care Tax Savings
Federal Tax Incentives to Promote Child Care Affordability for Parents
Against the cap of allowable expenses is a percentage limitation that is applied against the cap, which declines as income rises.
Therefore, temporarily for child care expenses in 2021, the maximum tax credit for child care expenses is $4,000 for one child (50% of the $8,000 expense cap) and $8,000 for two children (50% of the $16,000 expense cap).
The tax credit starts to phase out for taxpayers with adjusted gross income above $125,000 (e.g., the 50% credit declines to 49% for families with income of $125,000 - $127,000; 48% for families with income of $127,000 - $129,000; 47% for families with income of $129,000 - $131,000, etc.).
The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $55,000 or less, persons with disabilities and limited English speaking taxpayers who need assistance in preparing their own tax returns. IRS-certified volunteers provide free basic income tax return preparation with electronic filing to qualified individuals.
- Employee Child Care Tax Incentives (A one page summary)
- IRS Publication 503, Child and Dependent Care Expenses
- IRS Instructions to fill out Form 2441, Child and Dependent Care Expenses
- IRS Brief Description of the Child and Dependent Care Tax Credit and FAQs
- Dependent Care Assistance Plans (DCAPs)