Column: Good Changes To Dependent Care Credit

TAX TIPS (and other stuff)

By Kelly J. Bullis, CPA

2025-November 1st

Do you pay somebody to watch your kids while you and if married, your spouse, work?  It could also be for an elderly relative, not just kids.  (How many folks are starting to take care of a parent?  If you provide more than half their support and they live in your home, they could be a dependent, which can then qualify you to take this dependent care credit as well.)

This credit has been around for quite a while, but the “Big Beautiful Bill” (BBB) made it even better!

Generally, the dependent care credit is available for parents who incur qualified expenses to care for under-age 13 children so the parents can work.  The credit is available for the first $3,000 of qualified expenses for one child and the first $6,000 for two or more children.  (Notice that Congress doesn’t think it costs anything for a third or fourth child to be receiving care while the parent works?  How many times have I said, “Congress is stupid!”)

The maximum credit percentage is reduced from 35% to 20%, based on your adjusted gross income (AGI).  The 20% cap applies to taxpayers with AGI above $43,000 in 2025.  (Just about everybody.)  Thus, the maximum credit for most taxpayers is $600 for one child or $1,200 for two or more children.

Now here are the changes for 2026 in the BBB.

The credit percentage for lower-income taxpayers starts at 50%, before gradually heading lower as income goes up.  Most middle-income taxpayers will benefit from a 35% rate.  The absolute credit rate floor at higher income levels is 20% of qualified expenses.

The lowest 20% credit rate will apply to single filers with AGI above $105,000 and joint filers with AGI above $210,000.  The maximum credits for these taxpayers will remain at $600 and $1,200.  To put it another way, if a joint filing taxpayer earns less than $210,000 AGI (and singles less than $105,000), then their potential credit will be 35% of the same $3,000 maximum expenses for the first child and $6,000 in expenses for two or more children.  That makes their potential credit $1,050 for one child and $2,100 for two or more children.  This change to the BBB will provide a higher child and dependent care credit for a lot of folks.  (Why do I see political ads saying the BBB hurt lower income folks and only helped the “rich”?  Hmmm!)

In this credit, it has always allowed in-home costs to be counted in addition to the traditional out-of-home costs.  You can count expenses paid to a domestic worker like a housekeeper or cook who performs other services around the home.  You can even claim expenses for a babysitter who is related to you (but not a tax dependent like a teenage child).

Have you heard?  Jeremiah 23:4a says, “I will set shepherds over them who will are for them, and they shall fear no more…”

Kelly Bullis is a Certified Public Accountant in Carson City.  Contact him at 775-882-4459.  On the web at BullisAndCo.com  Also on Facebook.

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