Child and Dependent Care Tax Credit​ | What You Should Know

March 03, 2026 by Karen Thomas-Brandt, EA

Understanding the New Child and Dependent Care Credit Rules

Effective January 1, 2026, the Child and Dependent Care Credit got a big update. This credit helps working parents pay for childcare or care for other dependents – like a disabled adult or an elderly family member – so they can work or look for work. Under the new law, called the One Big Beautiful Bill Act (OBBBA), the credit becomes more generous for many families — especially those with lower and middle incomes.
 

What Changed?

The biggest change was the maximum credit percentage. In the past, the highest percentage of care expenses you could claim was 35%. Starting in 2026, the top percentage rate increased to 50%. That means some families can now get back up to half of their eligible childcare or dependent care costs as a tax credit. 

However, not everyone gets the full 50%. How much you can claim depends on how much money you earn during the year. This is measured using Adjusted Gross Income (AGI), which is your total income after certain adjustments.
 

Who Gets the Full 50% Credit?

Taxpayers with an AGI of $15,000 or less get the full 50% credit rate. This is the highest possible percentage, intended to provide the most help to families with lower incomes. 

Once your income exceeds $15,000, the credit percentage starts to decline.
 

How the Credit Percentage Slowly Drops

After you earn more than $15,000, the credit percentage drops by 1 percentage point for every $2,000 of income above that level. 

For example:
 

• If your AGI is between $15,001 and $17,000, your credit percentage drops from 50% to 49%. 
• As your income keeps going up, the percentage keeps dropping a little at a time. 

This gradual drop continues until the credit percentage reaches 35%.
 

When Does the Credit Stay at 35%?

The credit stays at 35% for a wide range of incomes:
 

• For single filers, this applies when AGI is between $43,001 and $75,000. 
• For married couples filing jointly, it applies when AGI is between $86,001 and $150,000. 

If your income falls within this range, your credit percentage will not change — it stays at 35%.
 

What Happens at Higher Income Levels?

Once your income exceeds $75,000 (or $150,000 if married filing jointly), the credit percentage starts decreasing again. 

This time, the drop works like this:
 

• The credit percentage goes down 1 percentage point for every $2,000 over $75,000. 
• If you’re married and filing jointly, it drops 1 percentage point for every $4,000 over $150,000. 

This reduction continues until the credit percentage reaches 20%, which is the lowest rate allowed.
 

Who Ends Up with the 20% Credit?

The minimum 20% credit rate applies when income is:
 

• Over $103,000 for single filers 
• Over $206,000 for married couples filing jointly 

Once you reach that income level, the credit percentage does not go any lower—it stays at 20%, no matter how much more you earn.
 

Why This Matters

These changes mean that many families will now get a larger tax credit than before, especially those with low or moderate incomes. While the rules are a bit complicated, the basic idea is simple:
 

• Lower income = higher credit percentage 
• Higher income = lower credit percentage 
• The credit now starts higher than before, at 50%, instead of 35% 

Additionally, starting January 1, 2026, the annual exclusion for employer-provided dependent care assistance programs (DCAPs) and Dependent Care Flexible Spending Accounts (DCFSAs) increases to $7,500 (from $5,000) for most taxpayers. For married individuals filing separately, the limit increases to $3,750 (from $2,500).

Overall, the updated rules aim to make childcare and dependent care more affordable by providing working families with more tax help starting with the 2026 tax year!