How the federal credit, a Dependent Care FSA and household employment taxes interact for a working household: what each is worth, which can be claimed together, and the order to use them in.
Calculate Tax Savings$600-$1,050 for one child
What it is typically worth
20-35% of at most $3,000 of expenses ($6,000 for two or more)
How it is worked out
The main federal childcare credit. The dollar figures you see quoted are usually the expense cap, not the credit.
Roughly $1,250-$1,500 in tax avoided
What it is typically worth
Generally $5,000 excluded from income, saving income and payroll tax at your rate
How it is worked out
Pre-tax account for childcare expenses through your employer
Varies by filing status—see IRS.gov for current-year maximums
What it is typically worth
Based on income and children
How it is worked out
Additional credit for working families with children
One child, $12,000 of childcare paid, $50,000 AGI, no employer FSA. The credit is not a percentage of what you spent — it is a percentage of a capped amount.
The 35% rate applies only to AGI at or below $15,000 and falls one point per $2,000 to a 20% floor above $43,000, so a $50,000 household is at 20%. With two or more children the capped amount is $6,000, giving $1,200 at that rate. These are the figures in IRS Publication 503 for tax year 2025; the IRS has not yet published a 2026 edition, so check the table for your filing year in IRS Publication 503.
| State | Program | Benefit | Eligibility |
|---|---|---|---|
| California | Child and Dependent Care Expenses Credit (Franchise Tax Board) | A state credit mirroring the federal one. Availability has varied by tax year, so confirm it is offered before counting on it. | Check current-year rules with the California Franchise Tax Board |
| New York | NY State Child and Dependent Care Credit | A percentage of the federal credit, higher for lower incomes. Partly refundable. | Check current-year rules with the NY Department of Taxation and Finance |
| Texas | Texas Workforce Commission child care services | Subsidised care rather than a tax break. Waiting lists are common. | Income-tested; apply through your local workforce board |
| Florida | School Readiness Program | Subsidised care for eligible families, administered by early learning coalitions. | Income-tested; apply through your regional coalition |
| Illinois | Child Care Assistance Program (CCAP) | Sliding-scale help with childcare costs, with a family co-payment. | Income-tested; apply through the Illinois Department of Human Services |
On-site or employer-sponsored daycare
Can save $5,000-$15,000/year
Potential savings
Available at ~10% of companies
Availability
Emergency childcare through providers like Bright Horizons
Covers sick days and emergencies
Potential savings
Available at ~15% of companies
Availability
Direct reimbursement for childcare expenses
Varies by employer policy
Potential savings
Negotiable with some employers
Availability
You cannot claim the same expenses for both your Dependent Care FSA and the Child and Dependent Care Tax Credit. Choose the option that gives you the most benefit.
If you pay any household employee cash wages of $3,000 or more in 2026, you must withhold and pay social security and Medicare taxes. The threshold is indexed each year, so check IRS Publication 926 for the current figure. Failure to do so can result in IRS penalties and loss of tax credits.
Many states offer additional childcare tax credits beyond federal benefits. Don't forget to check your state's specific programs and deadlines.
Max out your employer's Dependent Care FSA before claiming CDCTC. FSA benefits are tax-free, while CDCTC is just a credit.
A common piece of bad advice is to prepay next year's tuition in December to pull the credit forward. It does not work: expenses count in the year the care is actually provided, not the year you pay for it. Prepaying January's fees in December just moves cash, not tax.
Keep receipts, canceled checks, and provider agreements. You'll need this documentation if the IRS ever questions your claims.
Research your state's specific childcare tax benefits. Some states offer additional credits that can stack with federal benefits.
Use our calculator to see exactly how much you can save with tax credits and benefits. Factor in your income, family size, and childcare expenses for personalized results.
The figures on this page are estimates compiled from the published sources below. They are not original research: this site does not survey families, nannies, or childcare centers. Tax figures follow current IRS guidance; thresholds and credit percentages are indexed and change annually.
Last verified against these sources: August 2026. Prices and tax thresholds change annually, so check the current-year figure before relying on it. General information only, not tax or financial advice. See our editorial policy for how we source and correct figures.
Charles Smith
Charles writes and maintains nannyvsdaycare.com to help families cut through confusing childcare pricing and make clearer financial decisions. Read more about Charles and why he built this site.