Tax Tip Tuesday: Child Tax Credit & Dependent Care Credit – What You Need to Know

If you have kids, there are two major tax benefits that can help reduce your bill: the Child Tax Credit (CTC) and the Child & Dependent Care Credit (CDCC). While they sound similar, they work very differently—and both are set to change in 2026 unless Congress acts.

1. Child Tax Credit (CTC) – 2025 Rules

The CTC helps families offset the cost of raising children.

Who qualifies:

• Child must be under age 17 at the end of the tax year.

• Must be your dependent, related to you, and live with you for more than half the year.

• Must have a valid Social Security Number issued before your return due date.

  
  

Amount in 2025:

• Up to $2,000 per qualifying child.

• Up to $1,600 may be refundable as the Additional Child Tax Credit.

  
  

Income phase-out:

• Starts at $200,000 MAGI (single/head of household).

• Starts at $400,000 MAGI (married filing jointly).

• Reduced by $50 for every $1,000 over the limit.

2. Child & Dependent Care Credit (CDCC) – 2025 Rules

The CDCC helps working parents (and in some cases caregivers for disabled dependents) offset the cost of care so they can work or look for work.

Who qualifies:

• You paid for care of a child under 13, a spouse, or a dependent who is physically or mentally unable to care for themselves.

• Care must be so you (and your spouse if filing jointly) could work or actively look for work.

Amount in 2025:

• Credit is a percentage (20–35%) of up to $3,000 in qualifying expenses for one dependent or up to $6,000 for two or more.

• Maximum credit: $1,050 (one dependent) or $2,100 (two or more).

3. What’s Changing in 2026

• Increased maximum credit: $2,500 per child under age 17.

• Fully refundable regardless of income level—low-income families no longer limited by earned income.

• Phase-out starts higher: $250,000 MAGI (single/head of household) and $500,000 (married filing jointly).

• Annual inflation adjustments for the credit amount and phase-out thresholds.

  
  

Child & Dependent Care Credit changes in 2026:

• Higher eligible expenses: $5,000 for one dependent, $10,000 for two or more.

• Higher max percentage: Up to 50% of eligible expenses for lower-income taxpayers, phasing down to 20% at higher incomes.

• Partially refundable for families with no tax liability.

  
  

💡 Planning tip: If you expect higher childcare costs or your income is near the current 2025 phase-out limits, the BBB’s changes may significantly increase your benefit in 2026. Consider deferring some childcare contracts or structuring payments across years to maximize the credit. If you need assistance in preparing your tax returns, you can reach out to us at may.sung@mkhstaxgroup.com.