Whether you need a nanny or daycare for your little one, a senior caregiver to help with an aging loved one or a pet sitter to look after your fur baby, the cost of care can’t help but be overwhelming. In fact, according to the Care.com 2025 Cost of Care Report, the average parent spends 40% of their household income on care costs — 22% on child care, as well as 18% on the care of older loved ones, pets and the home. Shelling out so much for a necessary expense is a case for more effective tax credits that could help with paying for care — something Congress has aimed to address in the recently passed One Big Beautiful Bill Act (OBBBA).
“Families shouldn’t have to spend nearly half their income to ensure their loved ones are cared for,” says Bryan Jamele, the Head of Policy and Government Affairs for Care.com. “The data is clear, and we’re optimistic that these stronger tax credits means real relief for families is finally on the horizon.”
Here’s what you need to know about the changes and how they might benefit your family.
Key takeaways
- Care costs are overwhelming families. According to Care.com’s 2025 report, the average parent spends 40% of their household income on care costs (22% on child care and 18% on care for older loved ones, pets and home).
- The OBBBA expands several existing dependent care tax credits to address these costs: the Child Tax Credit increases from $2,000 to $2,200, and the Child and Dependent Care Tax Credit jumps from 35% to 50% of qualified expenses. Also, the employer-provided child care credits double from 25% to 50%..
- The timeline varies for different benefits. Some changes take effect for the 2025 tax year (the Child Tax Credit and senior deduction), while others start in 2026. You’ll see the benefits when filing taxes the following year.
- Flexible spending limits increase significantly. Dependent Care Assistance Plans (DCAPs) limits rise from $5,000 to $7,500, offering many families more pre-tax dollars to spend on care expenses.
- While these changes represent meaningful progress toward making care more affordable for some U.S. families, certainly more work can be done.
When do the new tax benefits go into effect?
When it comes to the Child Tax Credit and the temporary additional deduction for seniors, the new rules kick in for the 2025 tax year, which you’ll file for in 2026. All other credits can be claimed starting with the 2026 tax year — meaning, you’ll see the benefit in 2027. To learn more, refer to the chart below.
New One Big Beautiful Bill Act tax benefits for parents and families
Benefits at a glance
| Effective date | Before OBBBA | After OBBBA | |
| Child Tax Credit | Can be claimed starting with the 2025 tax year | $2,000 tax credit | $2,200 tax credit, and the credit will grow with inflation. |
| Child and Dependent Care Tax Credit (CDCTC) | Can be claimed starting with the 2026 tax year | Receive a tax credit of up to 35% on eligible child and dependent care costs. | Receive a tax credit of up to 50% on eligible child or dependent care costs. |
| Dependent Care Assistance Program (DCAP) | Can be claimed starting with the 2026 tax year | The maximum annual limit is $5,000 for single individuals and married couples filing jointly and $2,500 for married individuals filing separately. | Tax free up to $7,500 as a single individual or married couple filing jointly or $3,750 as a married person filing separately. |
| Employer-Provided Child Care Tax Credit | Can be claimed starting with the 2026 tax year | Companies can receive a tax credit of up to 25% of expenses paid for qualified child care facilities and 10% for child care resources and referral services. | Companies can receive a tax credit of up to 50% on eligible child care expenses for employees, and the credit will also be indexed for inflation; and 10% for child care resources and referral services. |
| Temporary additional deduction for seniors | Can be claimed starting with the 2025 tax year and will last through the 2028 tax year | Seniors can claim the regular standard deduction ($15,750 for single filers or $31,500 for married couples filing jointly for the 2025 tax year) as well as the 65+ addition, which is $2,000 for single taxpayers and $1,600 per qualifying spouse for married couples filing jointly. | Seniors can claim the regular standard deduction and the 65+ addition as well as a new temporary $6,000 deduction. |
Expanded child tax credit
How parents can benefit
Save up to $2,200, up $200 from the credit in 2024.
How it works
The OBBBA increases the maximum Child Tax Credit (CTC) to $2,200. The credit will also grow with inflation.
It is important to note that eligibility rules have also changed. The filer (or at least one person in a couple married and filing jointly) must have a valid Social Security number to claim the credit. Previously, only the eligible child had to have an SSN. That said, many U.S.-born children will be deemed ineligible as a result of this new rule. According to the Tax Policy Center, 500,000 children who would otherwise be considered eligible may lose access to the credit. It also bears noting that the CTC is not fully refundable, so low-income families who owe little to nothing in federal income taxes may receive little to no benefit.
Currently, the Child Tax Credit (CTC) offers eligible families a tax break of up to $2,000 per child, under the age of 17, with as much as $1,700 available as a tax refund for each qualifying child.
How to take advantage:
To claim the credit, if you’re married filing jointly, your modified adjusted gross income (MAGI) must be $400K or less, and other filers (single, head of household or qualifying widower) must make $200K or less.
You can claim the Child Tax Credit by adding your child(ren) to Form 1040, U.S. Individual Income Tax Return, and attaching a completed Schedule 8812, Credits for Qualifying Children and Other Dependents.
Enhanced tax credit for child and dependent care
How parents and family caregivers can benefit
Save up to 50% on eligible child or dependent care costs, up from 35% in 2024.
How it works
The OBBBA increases the maximum credit rate of the Child and Dependent Care Tax Credit (CDCTC) — a tax credit that offsets care expenses for a qualifying child or dependent who requires care while you work, job hunt or attend school — from 35% to 50% for the lowest income families. The credit rate will decrease for folks with higher incomes — with the lowest rate applying to those with higher incomes. This enhancement goes into effect beginning with the 2026 tax year.
One example of how the savings might work for parents of one child making $60K jointly: At this income level, they’ll see their credit rate go up under OBBBA from 20% to 35%. If they spend $3K or more on child care, they will now receive a credit of $1,050 as opposed to $600 previously.
Currently, families can claim 20-35% of child and dependent care costs up to an expense limit of $3,000 for one child or dependent, or at least $6,000 for two or more children or dependents to receive a tax credit up to $600 if they have one child and up to $1,200 if they have two or more children. The amount of credit you will receive is based on a percentage (20% – 35%) determined by your adjusted gross income (AGI).
It’s important to note that because the CDCTC is nonrefundable, the amount of eligible expenses can’t exceed earnings. The CDCTC won’t benefit families — either married or single — who are students or have disabilities and have no earnings for the tax year.
How to take advantage of it
When you file your 2026 taxes, be sure to add IRS Form 2441 to your personal federal income tax return in order to claim the child and dependent care tax credit.
“Families shouldn’t have to spend nearly half their income to ensure their loved ones are cared for. The data is clear, and we’re optimistic that these stronger tax credits means real relief for families is finally on the horizon.”
— Bryan Jamele, the Head of Policy and Government Affairs for Care.com
Employer-provided child care credit
How businesses can benefit
Companies who provide qualified childcare benefits can receive a tax credit of up to 50% up from 25% in 2024. These tax credits will hopefully encourage employers to sponsor covered care benefits and programs for their employees, thus helping working families.
How it works
The improved Employer-Provided Child Care Credit, also referred to as Section 45F, aims to provide further incentive for businesses who support their employees’ child care needs by offering a general business credit to employers who provide qualified child care services to their employees.
Effective for costs incurred after December 31, 2025, employers can get a tax credit of up to $500K (or $600K for eligible small businesses) to offset 40% of qualified child care expenses (50% for eligible small businesses)..
Small businesses can also link up and pool resources to offer child care together, and the OBBB allows companies to claim the credit for payments made to outside experts and agencies (like Care.com) who contract with qualified child care providers.
The credit will also be indexed for inflation, so the amount businesses will save will be adjusted as inflation increases.
Currently, the Employer-Provided Child Care Credit allows employers to get a tax credit of up to $150,000 per year to offset 25% of qualified child care facility expenses and 10% of child care resources and referral expenses. (The 10% credit limit for child care resources and referral expenses did not change.)
How to take advantage of it
If you own a business, consult with your tax professional, and file Form 8882, titled “Credit for Employer-Provided Childcare Facilities and Services,” to calculate and claim the credit.
Flexible spending accounts for dependents
How parents and family caregivers can benefit
$2,500 more pre-tax dollars for child care as a single individual or married couple filing jointly or $1,250 more as a married person filing separately, compared to the max amount allowed in 2024.
How it works
The new law increases the maximum annual limit for Dependent Care Assistance Plans, or DCAPs — spending accounts provided by employers that are meant to help employees cover child or senior care with pre-tax dollars— to $7,500 for single individuals and married couples filing jointly and $3,750 for married individuals filing separately.
It bears noting that the new increased limit is not indexed for inflation, which means the limits will remain as is until there’s further legislative action.
Currently, the maximum annual limit is $5,000 for single individuals and married couples filing jointly and $2,500 for married individuals filing separately.
How to take advantage of it:
If your employer offers a DCAP, you can elect to have a portion of your salary deducted from your paycheck and deposited into your account pre-tax. You then have until the end of the calendar year to use the full amount contributed to your DCAP.
Open enrollment for DCAPs is generally in the fall.
A new temporary additional deduction for seniors
How older Americans can benefit
Save up to $6K more from the deduction allowed in 2024.
How it works
The OBBBA introduces a $6K deduction ($12,000 total where both spouses qualify), available for tax years 2025 to 2028 , that seniors can claim in addition to their regular standard deduction — $15,750 for single filers or $31,500 for married couples filing jointly for the 2025 tax year — as well as the 65+ addition, which is $2K for single taxpayers and $1,600 per qualifying spouse for married couples filing jointly. (The $6000 deduction phases out with modified adjusted income over $75,000 for individuals and $150,000 for joint filers.)
That said, a senior single taxpayer who qualifies for the full deduction could deduct up to $23,750, and a couple could deduct up to $46,700.
These deductions are an effort to provide tax relief to older Americans and ease the financial stressors of retirement. However, according to the Bipartisan Policy Center, many older Americans with low incomes will not receive any benefit from the additional deduction.
How to take advantage
To claim the new additional senior deductions, taxpayers must:
- Be 65 or older on or before the last day of the taxable year.
- Have a Social Security Number.
- File jointly if married.
The case for even more support for parents
Given the exorbitant cost of care, tax tools that ease the burden on working families are a must. The child and senior care provisions included in the OBBBA represent progress, but as the cost of care — and the toll that cost takes on parents and caregivers — continues to skyrocket, American families will need more support.
“This is a big win for American families,” says Jamele. “Despite being long overdue, it’s movement in the right direction. There’s more work to be done, and we will not stop until every family has meaningful solutions that ease the burdens of caregiving.”
