For many working parents, paying for childcare can feel like having a second mortgage. The Child and Dependent Care Credit (CDCC) is designed to lighten that load, and starting in 2026,  it’s getting a significant boost. 

 

The new law increases how much of your care expenses can be credited and expands how much of your employer’s dependent-care benefits you can receive tax-free. It doesn’t change who qualifies, but it does make qualifying more rewarding. 

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Who Qualifies for the Credit 

 

You can claim the CDCC if you pay for care so that you, and your spouse, if you’re married, can work or look for work. The care must be for a qualifying individual, which includes: 

• A child under 13 who lives with you more than half the year. 
• A spouse who can’t care for themselves due to physical or mental limitations and lives with you more than half the year. 
• Another dependent, such as an adult child or elderly parent, who lives with you and is incapable of self-care. 

 

If you’re divorced or separated, the custodial parent (the one the child primarily lives with) gets to claim this credit even if the other parent claims the child as a dependent. 

 

One big limitation: the person you’re paying to care for must live with you for most of the year. Expenses for a parent or loved one in a nursing home or assisted living facility usually don’t qualify. 

 

What Types of Expenses Qualify 

 

To count, the expenses must be employment-related, meaning they make it possible for you to earn a living. Typical examples include: 

• Daycare centers, preschools, and babysitters. 
• After-school programs or day camps. 
• Home aides caring for a spouse or dependent who can’t manage on their own. 

 

Overnight camps don’t count, nor do payments to your spouse, the parent of your qualifying child, anyone you claim as a dependent, or your own child under age 19. 

 

You Must Have Earned Income 

 

This credit is designed for working people, so you must have earned income, i.e. wages, salary, or self-employment earnings. 

 

If you’re married, both spouses generally need earned income unless one is a full-time student or unable to care for themselves, in which case the law treats that spouse as having a small, “deemed” income so you can still qualify. 

 

When you claim the credit, you’ll need to list the care provider’s name, address, and taxpayer identification number (TIN) unless it’s a tax-exempt daycare center. You’ll also need to include the TIN or Social Security number of the qualifying individual(s) receiving care. 

 

If you’re married, you usually must file a joint return to claim the credit. 

 

How Much You Can Claim 

 

Under current rules, you can take a credit of up to 35% of your qualifying expenses, up to $3,000 for one person or $6,000 for two or more. That means the maximum credit is $1,050 for one child or $2,100 for two or more. 

 

Starting with tax year 2026, the OBBB increases that top percentage to 50%, with gradual phase-outs as income rises. The 50% rate starts reducing when your adjusted gross income (AGI) exceeds $15,000, going down to 35%. It then continues phasing down to 20% once your AGI passes $75,000 ($150,000 for joint filers). That’s a major difference for middle-income families, who’ll see a higher percentage of their childcare expenses offset than before. 

 

On top of that, if your employer offers a Dependent Care Assistance Program (DCAP), the account that lets you pay for childcare pre-tax, the amount you can exclude from your taxable income increases from $5,000 to $7,500 ($3,750 if married filing separately). 

 

When the New Rules Start 

 

The enhanced Child and Dependent Care Credit rules apply to tax years beginning after December 31, 2025, so your 2026 tax return will be the first time you’ll see the higher credit rate and increased employer exclusion. 

 

Until then, the old 35% rate and $5,000 DCAP limit still apply. 

 

Why This Matters 

 

For many families, childcare is the single biggest expense after housing. Parents often feel punished for working, especially when daycare or in-home help costs nearly as much as one parent’s paycheck. The CDCC doesn’t solve that, but it does move the needle in the right direction. By raising the credit percentage and allowing more pre-tax childcare savings, the new rules put real money back into working families’ budgets.