The Child and Dependent Care Expenses credit is an important part of the income tax formula, which is used to calculate the tax liability of individuals. The credit is based on expenses related to the care of a qualifying child or dependent, and can be claimed on up to $3,000 of qualifying employment-related expenses for one qualifying person, or up to $6,000 for two or more qualifying persons.
The maximum credit is 35% of employment-related expenses, but this percentage decreases as income increases, with a maximum credit of 20% for those with adjusted gross incomes over $43,000. It’s important to note that this credit is non-refundable, meaning it cannot take the tax liability below zero. Additionally, there are two types of credits: non-refundable and refundable, with the latter being able to take the liability below zero, making it more like a welfare or benefits type of program. Finally, it’s worth noting that the enhancements made to this credit for the tax year 2021 have expired and the credit has been tightened in 2022.