OBBB Enhances Child and Dependent Care Tax Credit

The child and dependent care tax credit provides a tax credit to offset the cost of qualifying work-related dependent care expenses for children under the age of 13. The taxpayer multiplies the amount of childcare expenses incurred by a percentage, depending on the taxpayer's income (prior to 2026, the percentage was 35%, or 20% for parents with AGI in excess of $43,000). OBBB increased the percentage of childcare expenses used to calculate the credit beginning with the 2026 tax year, as follows: (1) for households with AGI below $15,000: 50%, (2) for households with AGI between $15,000 and $75,000 (single and heads-of-households) or AGI between $15,000 and $150,000 (joint returns): the percentage is phased out by 1% for every $2,000 of AGI that exceeds $15,000 (to a minimum of 35%), and (3) for households with AGI over $75,000 (single and heads-of-households) or $150,000 (joint returns): the percentage is reduced from 35% by 1% for every $2,000 (single returns) or $4,000 (joint returns) over the threshold amounts (to a minimum of 20%). For more information on the child and dependent care tax credit, visit Tax Facts Online. Read More: Link to Q8567. Note: Q is updated.