The Federal Child and Dependent Care Credit

The federal credit is designed for working parents (or parents looking for work) who pay someone to watch their kids so they can earn a living. It covers children under age 13, and the math works like this:

• Maximum qualifying expenses: $3,000 for one child, $6,000 for two or more
• Credit percentage: 20% to 35% of qualifying expenses, depending on your adjusted gross income
• Income phase-down: The percentage starts at 35% for AGI up to $15,000 and drops to 20% for AGI above $43,000

So if you have two kids in daycare and your household AGI is over $43,000 (which covers most LA families), you’re looking at a credit of up to $1,200. That’s not a deduction — it’s a dollar-for-dollar reduction in your tax bill.

One thing to know: both spouses have to have earned income for the credit to apply. If one parent stays home, you generally won’t qualify unless that parent is a full-time student or disabled.

California’s Child and Dependent Care Expenses Credit

California has its own version, and it’s worth filing for even though the amounts are smaller. The state credit follows the same basic rules as the federal one — qualifying expenses, age limits, earned income requirements — but it uses a different percentage table.

For most LA families with moderate to high incomes, the California credit works out to roughly the same percentage as the federal credit. The state credit is nonrefundable, meaning it can reduce your California tax to zero but won’t generate a refund on its own.

What Counts as Qualifying Child Care

The IRS is fairly broad here. Qualifying expenses include:

• Daycare centers and preschools (but not kindergarten or above — that’s education, not care)
• Before-school and after-school programs
• Babysitters and nannies, including those who come to your home
• Day camps, including sports and specialty camps
• Au pair expenses (the portion allocated to child care)

What doesn’t count: overnight camps, tutoring, food and clothing, or payments to your spouse or the child’s other parent. Payments to your own child under age 19 don’t qualify either.

LA-Specific Considerations

Child care in Los Angeles isn’t cheap. The average cost for infant care in LA County runs roughly $16,000 to $20,000 per year. Preschool isn’t much better. That means most families blow past the $3,000/$6,000 expense caps pretty quickly.

California Alternative Payment Programs

If your household income falls below certain thresholds, you may qualify for subsidized child care through the California Alternative Payment Program (APP). LA County runs several of these through agencies like CCRC (Child Care Resource Center) and Crystal Stairs. These programs can cover most or all of your child care costs, and they’re separate from the tax credit.

CalWORKs Child Care

Families receiving CalWORKs benefits can get child care assistance in three stages, covering everything from the initial welfare-to-work transition through up to two years after you leave cash aid. This is administered at the county level through DPSS.

Interaction with the Dependent Care FSA

Many LA employers offer a Dependent Care FSA, which lets you set aside up to $5,000 pre-tax for child care expenses. Here’s the catch: any amount you run through the FSA reduces your qualifying expenses for the tax credit dollar-for-dollar.

For most families earning over about $43,000, the FSA is the better deal because the tax savings from excluding $5,000 from income (at your marginal rate) usually exceeds the 20% credit. But run the numbers both ways — especially if you’re in a lower bracket.

How to Claim the Credits

1. Get your provider’s tax ID. You’ll need the name, address, and EIN (or SSN) of every care provider. Daycare centers will give you this readily. For a private babysitter, ask before year-end.
2. File Form 2441 with your federal return. This is where you list the providers, expenses, and calculate the credit.
3. File California Form 3506 with your state return. It mirrors the federal form closely.
4. Keep receipts. The IRS doesn’t require you to attach them, but if you’re audited, you’ll need documentation of every payment.

Common Mistakes to Avoid

• Not reporting your provider’s info: If you skip the TIN, the IRS will likely reject the credit
• Claiming more than earned income: Your credit is capped at the lower-earning spouse’s income
• Forgetting about the California credit: Many families claim the federal credit but miss the state version entirely
• Double-dipping with FSA: You can’t claim the credit on expenses already paid through a Dependent Care FSA

Sources & References

• IRS — Child and Dependent Care Credit Information
• IRS — Form 2441, Child and Dependent Care Expenses
• California FTB — Form 3506 Instructions
• California Department of Social Services — Child Care Programs