Section 214 and the Child and Dependent Care Credit

A search for information on Section 214 of the Internal Revenue Code leads to a historical tax provision that allowed certain taxpayers to deduct expenses for the care of a dependent. This law was repealed by the Tax Reform Act of 1976 and is no longer in effect. In its place, Congress created a new benefit under a different part of the tax code, known today as the Child and Dependent Care Credit.

This modern credit is governed by Section 21 of the Internal Revenue Code and serves a similar purpose: to help offset the costs of care that are necessary for a taxpayer to work or look for work. Unlike the former deduction, which reduced taxable income, this is a nonrefundable tax credit. This means it can reduce a taxpayer’s final tax liability to zero, but no portion of the credit will be paid out as a refund.

Qualifying for the Child and Dependent Care Credit

To claim the Child and Dependent Care Credit, a taxpayer must satisfy several eligibility tests. The first is the Qualifying Person Test, which defines who the care expenses must be for. A qualifying person is typically a taxpayer’s dependent child who is under the age of 13 at the time the care is provided. If a child turns 13 during the tax year, only the expenses incurred for their care before their birthday are eligible.

The definition of a qualifying person also extends beyond young children. It includes a taxpayer’s spouse who is physically or mentally incapable of self-care and has lived with the taxpayer for more than half of the year. The test also covers any other dependent, regardless of age, who is similarly incapable of self-care and has lived with the taxpayer for more than half the year. This also includes an individual who would have been a dependent if not for having a gross income of $5,200 or more for the 2025 tax year.

Another requirement is the Work-Related Expense Test, which mandates that care expenses must be paid to enable the taxpayer (and their spouse, if filing jointly) to work or actively look for work. The purpose of the expense must be to ensure the qualifying person’s well-being and protection while the taxpayer is working or seeking employment. Expenses for services like summer day camps can qualify, but overnight camps do not. Similarly, the cost of kindergarten or higher education is not considered a work-related care expense.

The Earned Income Test requires that the taxpayer, and their spouse if filing a joint return, must have earned income during the tax year. Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. It does not include income from sources like pensions, Social Security benefits, or investment returns. A special rule applies if one spouse is a full-time student or is physically or mentally incapable of self-care; that spouse is treated as having earned income for purposes of this test.

Calculating the Credit Amount

The calculation begins with the taxpayer’s work-related expenses, but these are subject to a dollar limit. For the 2025 tax year, a taxpayer can count a maximum of $3,000 in expenses for the care of one qualifying person. If the taxpayer paid for the care of two or more qualifying persons, this limit increases to $6,000.

The amount of expenses used in the calculation is also limited by the taxpayer’s earned income. The work-related expenses cannot exceed the taxpayer’s earned income for the year. For joint filers, the expenses are limited to the earned income of the lower-earning spouse. For example, if one spouse earns $50,000 and the other earns $5,000, the maximum amount of care expenses that can be used for the credit calculation is $5,000.

The credit is a percentage of these limited expenses, determined by the taxpayer’s Adjusted Gross Income (AGI). The credit percentage starts at 35% for taxpayers with an AGI of $15,000 or less. For every $2,000 of AGI above that threshold, the credit percentage decreases by one point. The percentage is 20% for taxpayers with an AGI of $43,000 or more.

An adjustment is required if the taxpayer received dependent care benefits from their employer. These benefits, reported in Box 10 of Form W-2, are excluded from the taxpayer’s income up to $5,000. The amount of these tax-free benefits directly reduces the dollar-for-dollar limit on expenses eligible for the credit. For instance, if a taxpayer with two children received $5,000 in employer benefits, they must subtract this from the $6,000 expense limit, leaving only $1,000 of expenses available to calculate the credit.

Information Required to Claim the Credit

Taxpayers must gather specific information before filing. For each qualifying child or dependent, the taxpayer will need their full name and Social Security Number (SSN). For each person or organization paid for care, the taxpayer must have their name, full address, and Taxpayer Identification Number (TIN). An individual provider’s TIN is their SSN, while a business uses an Employer Identification Number (EIN).

If a care provider refuses to give their TIN, the taxpayer must demonstrate “due diligence” in trying to obtain it. A taxpayer can still claim the credit if they can show a reasonable effort was made, for example, by keeping a copy of a request or a completed Form W-10, Dependent Care Provider’s Identification and Certification.

How to Claim the Credit on Your Tax Return

To claim the credit, taxpayers must complete and file Form 2441, Child and Dependent Care Expenses, with their Form 1040, 1040-SR, or 1040-NR. This form is used to report the required information about care providers and qualifying dependents.

The form guides the taxpayer through the calculation, applying the expense limits, the earned income limitation, and the AGI-based percentage. If the taxpayer received dependent care benefits from an employer, they must complete Part III of the form to determine how much of their expenses are eligible for the credit.

Once Form 2441 is complete, the final credit amount is transferred to Schedule 3 (Form 1040). This step ensures the credit reduces the amount of tax the filer owes.