Child and Dependent Care Tax Credits
Helping to Pay Your Child Care Costs
The Federal Child and Dependent Care Tax Credit is a tax credit offered by the federal government. It is a non-refundable credit for working people who pay for child or dependent care. Qualifying families can get back some or all of the federal income tax taken out of their paychecks during the year. However, families earning too little to pay federal income tax cannot use this credit — the federal credit is limited to the amount of the worker’s income tax liability.
The New York State and New York City Child and Dependent Care Tax Credits help more low-income families because, unlike the federal credit, they are refundable. Eligible families will get extra cash back from New York State if their New York State and New York City Child and Dependent Care Credits are worth more than the state and city taxes they owe, even if they owe no taxes.
New York’s Child and Dependent Care Credit is also calculated as a percentage of the Federal Child and Dependent Care Credit for which a family would be eligible (see example on the opposite side of this page). The New York City Credit is calculated as a percentage of the New York State Credit, but is only available for expenses for children under age 4. Even workers whose earnings are too small to have paid taxes can get the New York State and City Child and Dependent Care Credit. What’s more, the New York State and City credits reduce any additional taxes workers may owe.
Workers who qualify for the Federal Child and Dependent Care Credit will also qualify for the New York State Child and Dependent Care Credit. The New York State Child and Dependent Care Credit is most beneficial to families earning $50,000 or less, but all families with out-of-pocket expenses for child care benefit from the credit. In order to get either the federal or state credit, families must file federal and state tax returns. New York City residents with incomes of $30,000 or less and a child under age 4 can also qualify for the New York City credit.
How the Federal Credit Works:
A taxpayer may claim a non-refundable credit against income tax liability for up to 35% of a limited amount of employment-related dependent care expenses. Taxpayers with annual adjusted gross income under $15,000 can claim 35% of their allowable expenses as a credit. Above $15,000 of adjusted gross income, the percentage of allowable expenses that can be claimed as a credit phases down to 20% (decreasing by 1% for every $2,000 of income). Eligible employment-related child and dependent care expenses are limited to $3,000 for one qualifying dependent and $6,000 if there are two or more qualifying dependents. Expenses that may be taken into account in computing the credit generally may not exceed an individual’s earned income or, in the case of married taxpayers, the earned income of the spouse with the lesser earnings. Thus, if one spouse is not working, no credit generally is allowed. Eligible families with one qualifying dependent can claim up to $1,050 (35% of $3,000) as a credit against their federal tax liability and eligible families with two or more qualifying dependents can claim up to $2,100 (35% of $6,000) against their federal tax liability when they file their federal return. The federal credit can only be used to offset actual federal tax liability, even if the family would otherwise be eligible for a larger credit.
How New York’s Child and Dependent Care Credit Works:
The value of New York's Child and Dependent Care Credit is calculated as a percentage of the federal credit for which a family is eligible. Because New York State's Child and Dependent Care Credit is refundable, if the amount of the allowable credit exceeds the amount of state tax liability, the balance will be refunded to the taxpayer by the NYS Department of Tax and Finance.
Eligible families with lower incomes receive a higher percentage of the Federal Dependent Care Credit for which they are eligible on their State tax return and, therefore, a larger State credit, as follows:
- families with incomes up to $25,000 can claim, on their State tax return, an amount equal to 110% of the federal credit for which they are eligible;
- families with incomes between $25,000 and $40,000 can claim between 110% and 100% of the federal credit for which they are eligible;
- families with incomes between $40,000 and $50,000 can claim 100% of the federal credit for which they are eligible;
- families with incomes between $50,000 and $65,000 can claim between 100% and 20% of the federal credit for which they are eligible; and
- families with incomes above $65,000 can claim 20% of the federal credit for which they are eligible.
A mother with one child under age 13 earned $18,000 in 2015 and had qualifying expenses of $3,000* that enabled her to work. She would be eligible for a Federal Child and Dependent Care Credit of $990, or 33% of her allowable expenses of $3,000, as calculated on line 9 of IRS Form 2441. Her federal income tax liability is $75 but because the federal credit is not refundable, the actual federal credit received will be smaller than the amount for which the family is eligible. The federal credit can be no larger than the actual tax liability before refundable credits, in this case $75.
But, New York State’s Child and Dependent Care Credit is based on a percentage of the federal credit for which the family would have been eligible and not a percentage of the actual federal credit received. In this example, the State Child and Dependent Care Credit is worth $1,089 (110% of the $990 federal credit for which this working mother would be eligible as calculated on line 9 of IRS Form 2441, Child and Dependent Care Expenses).
* Because the Child and Dependent Care Credit you receive reflects your actual out-of-pocket expenses, if you received a child care subsidy that reduced your qualifying expenses, that will affect the size of the credit you can claim.
How to Claim It:
To get the federal credit, workers raising children or other qualifying dependents in 2015 must file either federal Form 1040 (or 1040A) and fill out and attach Form 2441. To get the State credit, you must file Form IT-216 along with your State tax return. Form IT-216 is fairly straightforward and walks a family through the necessary calculations to determine the size of the State credit.
To be eligible for the Federal or State Child and Dependent Care Credit, you must have:
- been gainfully employed and had earned income in 2015 (some full-time students or disabled spouses may also be eligible);
- paid out-of-pocket for child and/or dependent care that enabled you to work. Eligible employment-related expenses are only allowed for the care of:
- a child or children under the age of 13 whom you claim as a dependent,
- a spouse who is disabled and not able to care for him or herself, or
- any disabled person not able to care for him or herself and whom you can claim as a dependent on your federal tax return (or could have claimed as a dependent except that person received $4,000 or more in gross income or filed a joint return)
- if you are divorced or separated, see “special rules for children of divorced or separated parents” on the instructions for IRS Form 2441.
- the amount paid for dependent care less than the income for 2015 (If filing a joint return, the amount paid must be less than the income of the lower-earning spouse).
The cost of any kind of child or dependent care can qualify as long as the care provider has an Employer Identification Number or Social Security Number (if an individual) that can be listed on your tax return. This includes care provided at a center, a summer day camp, a family day care home or a church, or care provided by a neighbor or relative (except if provided by a spouse, a dependent, or a child under age 19). If a family receives free childcare, such as from a state-subsidized program, the cost of that care cannot be used to qualify for the credit. However, if only part of the family’s childcare is subsidized and the family pays for the rest, the amount the family pays out-of-pocket can be counted as employment-related expenses.
Low-income workers can get free help with federal tax preparation through a program called Volunteer Income Tax Assistance (VITA). For information, call 1-800-TAX-1040 (1-800-829-1040).
Federal Tax Forms
Forms and instructions are available on the Internal Revenue Service website.
NYS Tax Forms
Forms and instructions are available on the New York State Department of Taxation and Finance website. See this information about the importance of maintaining good records of child care expenses in order to claim the credit.