If you pay someone to watch your child so you can work, the government pays part of the bill. For 2026 it pays more.
One of our clients told us they had no idea summer camp and child care could reduce their taxes. That is what this credit is for, and it is the credit we most often find missing from self-prepared returns. The 2025 tax law raised the top rate to 50% of expenses starting with 2026 returns, so it is worth a fresh look.
Current as of October 2026 · Figures are for tax year 2026
Three tests: the person being cared for, the reason for the care, and you.
Your dependent child under 13, or a spouse or dependent of any age who cannot care for themselves and lived with you more than half the year. A child who turns 13 in July qualifies for expenses through the birthday, not after.
So that you could work or look for work. If you are married, both of you must work, be looking for work, be a full-time student, or be unable to care for yourself. One spouse at home by choice means no credit.
The parent the child lives with. Divorced parents: the custodial parent claims this credit even in a year the other parent claims the Child Tax Credit under a Form 8332 release. Divorced parents and the Child Tax Credit.
The credit cannot exceed the earned income of the lower-earning spouse. A student spouse, or one unable to care for themselves, is treated as having $250 of earned income for each month of school ($500 with two or more qualifying people), so a family with one worker and one full-time student still qualifies, at a reduced level.
The test is whether the expense is for the child’s well-being and protection while you work, not whether it is educational.
| Counts | Does not count |
|---|---|
| Day care centers and home day care | Overnight camp, even one week of it |
| Preschool and nursery school | Kindergarten and up: school tuition |
| Before- and after-school programs | Tutoring, music lessons, sports leagues |
| Summer day camp, including sports and specialty camps | Food, clothing and entertainment billed separately |
| Nannies, babysitters and au pairs, including their payroll taxes | Care by your spouse, by the child’s other parent, or by your own dependent |
| Care by a grandparent or older sibling who is not your dependent | Care paid by a dependent care FSA (already tax-free) |
Expense limit: $3,000 for one qualifying person, $6,000 for two or more. The limit is per family, not per child, and is reduced dollar for dollar by anything reimbursed through a dependent care FSA.
Day camp is the one families miss most often. A soccer camp, a coding camp or a camp at the recreation center all qualify if the child comes home at night; the theme does not matter. Overnight camp never qualifies.
You will need each provider’s name, address and taxpayer identification number: a Social Security number for an individual, an employer identification number for a center. Ask when you pay, not in April; Form W-10 is the IRS form for requesting it. If you pay a nanny or regular sitter in your home, you may also be a household employer with payroll obligations of your own. Household employees.
The IRS matches the provider’s identification number on Form 2441 against the provider’s own return. A sitter paid in cash who did not report the income is the usual reason a credit gets questioned, and the family, not the sitter, gets the letter. When a provider refuses to give a number, we document the request and claim the credit anyway under the due-diligence rule. When a grandparent is the provider, we make sure the grandparent is reporting the income.
The credit is a percentage of your qualifying expenses, and the percentage depends on adjusted gross income. The 2025 law raised the top and moved the floor further out.
The rate starts at 50% for AGI of $15,000 or less and falls one percentage point for every $2,000 of AGI above that until it reaches 35%. It holds at 35% until AGI passes $75,000 single or $150,000 joint, then falls one point for every $2,000 (single) or $4,000 (joint) to a 20% floor, where it stays no matter how high income goes. Before 2026 the top rate was 35% and nearly everyone with a full-time job got 20%.
| Adjusted gross income | Single / head of household | Married filing jointly |
|---|---|---|
| Up to $15,000 | 50% | 50% |
| $15,000 to $45,000 | falls from 50% to 35% | falls from 50% to 35% |
| $45,000 to $75,000 | 35% | 35% |
| $75,000 to $150,000 | falls from 35% toward 20% | 35% |
| $150,000 to $210,000 | 20% | falls from 35% to 20% |
| Above $210,000 | 20% | 20% |
The single rate reaches 20% at $105,000 of AGI; the joint rate reaches 20% at $210,000. Breakpoints are figured from the law’s formula and are not indexed for inflation.
| AGI | Rate | Credit | |
|---|---|---|---|
| Single parent, part-time work | $14,000 | 50% | $3,000 |
| Couple, one earner plus a student | $60,000 | 35% | $2,100 |
| Couple, two earners | $170,000 | 30% | $1,800 |
The couple at $170,000 is $20,000 past the joint line, five steps of $4,000, so the rate drops five points from 35% to 30%. Under the old law the same family got 20%, or $1,200.
The credit is not refundable. It reduces your tax to zero but no further, which matters most for the lowest-income families the 50% rate was meant to help. A single parent with $14,000 of income owes little federal tax to begin with, so much of that $3,000 may go unused. For them the earned income credit and the refundable part of the Child Tax Credit do more.
Many employers offer one. For 2026 the limit rises to $7,500. You cannot use the same dollars twice, so it is a choice.
FSA money comes out of your paycheck before federal income tax, Social Security and Medicare tax, and Colorado tax. For a family in the 22% federal bracket the saving is 22% plus payroll taxes plus Colorado’s 4.40%, somewhere above 30 cents on the dollar.
The credit is worth its rate, 20% to 50%, on at most $6,000 of expenses. A family at the 20% floor does better with the FSA on every dollar. A family at 50% does better with the credit on the first $6,000, since no bracket plus payroll tax reaches 50%.
The in-between cases are where we earn our fee. At 35% the answer depends on your bracket and how much care you pay for. We work it both ways.
The $6,000 expense limit for the credit is reduced by every dollar reimbursed through the FSA. With $7,500 in the FSA there is nothing left for the credit, even with three children in care. With $3,000 in the FSA and two children, $3,000 of expenses can still go toward the credit.
FSA elections are made at open enrollment in the fall, for the following year, and are hard to change. To compare before you enroll, call 303-734-1040 with your expected care costs and last year’s return.
Colorado starts from federal taxable income at a flat 4.40%, so the federal credit does not change Colorado tax directly. Colorado has a credit of its own.
Colorado offers its own child care expenses credit for lower-income taxpayers, figured as a share of the federal credit: currently 50% of the federal credit with AGI up to $25,000, 30% up to $35,000, and 10% up to $60,000. Because it piggybacks on the federal credit, missing the federal credit means missing this one too. FSA money also escapes Colorado tax, part of the FSA’s edge above. Colorado income tax basics.
Yes, if she is not your dependent and you report her name, address and Social Security number. She must report the income on her own return. Paying your spouse or the child’s other parent never counts.
No. Kindergarten and higher grades are education, not care. Before- and after-school care at the same school does count, as long as it is billed separately from tuition. Preschool counts in full.
Not unless you were a full-time student, looking for work, or unable to care for yourself. Both spouses have to have a work-related reason for the care.
Ask in writing with Form W-10 and keep a copy. If they still refuse, the credit can be claimed with a statement that you tried. Expect the IRS to ask about it.
Generally for three years. Bring the receipts and we will look at amending. The 50% rate applies only to 2026 and later; earlier years use the old rates.
Bring the provider statements and we will figure the credit, the FSA comparison, and the Colorado credit together. In person in Lone Tree or remotely, year round.
This page is general information, current as of October 2026, and is not advice about your situation. Tax law changes every year. Confirm anything that matters to you with us or at the sources below.