Do You Get Money Back for Daycare on Taxes? Credit and FSA

Yes, you can get money back for daycare on your taxes, though not as a deduction. The federal Child and Dependent Care Credit reduces your tax bill by a percentage of what you paid for care while you worked, up to $600 if you have one qualifying child and up to $1,200 if you have two or more. Many working parents can stack additional savings on top by running daycare costs through a Dependent Care FSA at work.

How Much You Can Actually Get Back

The credit is a percentage of your qualifying care expenses, and the IRS caps those expenses before the percentage is applied. You can count up to $3,000 in expenses for one qualifying individual, or up to $6,000 for two or more, no matter how much you actually spent.¹

The percentage depends on your adjusted gross income:

AGI of $15,000 or less: 35% of eligible expenses
AGI between $15,001 and $43,000: the percentage drops one point for every $2,000 of additional income, sliding from 34% down to 21%
AGI over $43,000: 20%, which is the floor no matter how high your income goes²

Most two-earner households land in the 20% bracket. That works out to $600 back on one child ($3,000 × 20%) or $1,200 back on two or more ($6,000 × 20%). Modest, but it comes off your tax owed dollar for dollar rather than just shrinking your taxable income.

One catch: the credit is non-refundable. It can zero out your federal tax bill, but it won’t create a refund on its own. If you owe $400 and qualify for a $600 credit, you erase the $400 and the remaining $200 is gone.³ Congress made it refundable for the 2021 tax year only; that expansion has expired.

Who and What Qualifies

Three things have to line up: a qualifying person, care that let you work, and enough earned income.

The Child (or Other Dependent)

The typical qualifying individual is your child who was under 13 when the care was provided. A spouse or dependent of any age who cannot physically or mentally care for themselves and lives with you more than half the year also qualifies.⁴

If a child turns 13 during the year, you don’t lose everything. Expenses paid for care before the 13th birthday still count.⁵

The Care Has to Be Work-Related

You (and your spouse, if you’re married) must have been working or actively looking for work while the care happened. There’s an exception if one spouse was a full-time student for at least five calendar months of the year, or was physically or mentally unable to care for themselves.⁴

The Earned Income Floor

Your eligible expenses can’t exceed the earned income of the lower-earning spouse. Earn $40,000 while your spouse earned $2,000, and your eligible expenses cap out at $2,000, whatever you actually paid. A full-time student or self-care-incapable spouse is treated as having earned $250 per month with one qualifying individual, or $500 per month with two or more.⁵ Married couples generally need to file jointly.

Which Daycare Costs Count

Qualifying expenses include daycare centers, nursery school, preschool, in-home nannies and babysitters, and day camps (even specialty camps for soccer, computers, and so on). Overnight camp does not qualify. Tuition for kindergarten and higher grades doesn’t qualify either, because the IRS treats that as education rather than care.⁴

You also can’t pay just anyone. Payments to your spouse, to the other parent of your under-13 child, to your own child under 19, or to anyone you claim as a dependent don’t count.⁵ Paying your 17-year-old to watch a younger sibling won’t produce a credit.

The Bigger Money: Dependent Care FSA

If your employer offers a Dependent Care Flexible Spending Account (sometimes called a Dependent Care Assistance Program), it usually saves more than the credit does. You set aside pre-tax wages to pay for the same kinds of qualifying care, and the money escapes both income tax and payroll tax. The current statutory maximum exclusion is $5,000 for joint filers and single filers, or $2,500 if married filing separately.⁴ Legislation passed in 2025 may raise that limit to $7,500 for tax year 2026, so check with your employer during open enrollment.

You can’t double-dip. Any expenses paid through the FSA get subtracted from your credit-eligible expenses on Form 2441, Part III. Contribute $5,000 to an FSA with two qualifying children, and $1,000 of expenses remain eligible for the credit ($6,000 cap minus $5,000). At 20%, that’s another $200 back on top of the FSA tax savings.⁴

Dependent care FSAs are use-it-or-lose-it. Some employers offer a grace period of up to two and a half months to spend down the prior year’s balance, but there’s no full carryover. Overestimating your election means forfeiting the leftover, so err low.

How to Claim It

File IRS Form 2441, “Child and Dependent Care Expenses,” with your Form 1040. The form asks for the name, address, and taxpayer identification number of every care provider you paid during the year. For an individual, that’s a Social Security Number or ITIN. For a center, it’s the Employer Identification Number.²

Missing or incorrect provider information can get the whole credit disallowed. Ask your daycare for a year-end statement with their TIN in early January. If a provider refuses to give it to you, you can still claim the credit by entering what you have on Form 2441, writing “See Attached Statement” in the blank columns, and attaching a note explaining that you requested the information and were refused.⁴

Keep receipts, canceled checks, and provider statements for at least three years after filing.

Two Situations That Trip People Up

Divorced or Separated Parents

Only the custodial parent can claim the Child and Dependent Care Credit. The custodial parent is the one the child lived with for the greater number of nights during the year; if the nights are equal, it’s the parent with the higher AGI.⁶

A custodial parent can sign Form 8332 to release the dependency exemption to the other parent, and the Child Tax Credit travels with it. The dependent care credit does not. Even with a signed Form 8332, the noncustodial parent cannot claim it.⁶ This surprises parents whose custody agreements alternate the dependency exemption year to year.

Hiring a Nanny at Home

Paying an in-home provider adds tax obligations that daycare-center parents don’t have. If you pay a nanny, babysitter, or housekeeper $3,000 or more in cash wages during 2026, you become a household employer responsible for Social Security and Medicare taxes on those wages.⁷ Once that threshold is met, you’ll also need to issue a W-2, get an EIN, and attach Schedule H to your Form 1040.⁸ Skipping these obligations sometimes surfaces years later during an audit triggered by the care credit claim itself.

Don’t Forget Your State

About 30 states offer their own child and dependent care tax credits on top of the federal one. Most calculate the state credit as a percentage of the federal credit, ranging from 10% to 100% depending on the state and your income. A few give a flat dollar credit per child or a deduction instead. Because many state credits piggyback on the federal, filing Form 2441 is often a prerequisite. Pull up your state’s income tax instructions before you file to see what’s available.

1
Internal Revenue Service. Instructions for Form 2441 (2025)
2
Internal Revenue Service. 2025 Instructions for Form 2441
3
Office of the Law Revision Counsel. 26 USC 21 – Expenses for Household and Dependent Care Services Necessary for Gainful Employment
4
Internal Revenue Service. Publication 503 (2025), Child and Dependent Care Expenses
5
Internal Revenue Service. Topic No. 602, Child and Dependent Care Credit
6
Internal Revenue Service. Claiming a Child as a Dependent When Parents Are Divorced, Separated or Live Apart
7
Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
8
Internal Revenue Service. Instructions for Schedule H