Use the child care tax credit to save on your 2020 taxes

The child care tax credit can save families up to $1,200 a year


Once families find a qualified, trustworthy nanny, the next step is making sure their finances are in order. As long as the nanny is paid on the books, the vast majority of families will be eligible to take the Child or Dependent Care Tax Credit for their 2020 tax returns. However, according to the IRS, only about 6.5 million families do each year.


Qualifications for the child care tax credit

Families have no income restrictions when it comes to claiming a child care tax deduction. A long as the family meets the following requirements, they are able to take advantage of the tax credit:

  1. The care must be for a child under the age of 13;
  2. The family must need child care because both spouses work, are looking for work or are full-time students;
  3. The family must have qualifying child or dependent care-related expenses.


The only catch with the third requirement is that the child care expenses must be for the well-being and protection of the child. A few examples of qualifying expenses are:

  • The nanny's wages.
  • Fees paid to a placement agency to match the nanny with the family.
  • The family's employer taxes paid on top of the nanny's wages.
  • Dues for enrolling the child in a day care facility.
  • Tuition for a day camp (overnight camps are excluded).

How to claim the child care tax credit in 2020 and what you can expect to save

Families will file IRS Form 2441 with their personal federal income tax return in order to claim the child care tax credit. The form asks for the family's care-related expenses for the calendar year and then calculates their savings based on a percentage determined by the family's income level. While the credit can be as much as 35%, most families will receive a 20% tax savings.

Families are limited on how much in child care expenses they can claim, based on how many kids they have. The expense limit is $3,000 for one child or $6,000 for two or more children. Because most families will receive a 20% tax credit on their child care expenses, they can expect to receive a tax break of up to $600 if they have one child and $1,200 if they have two or more children.


A tax savings scenario

A family hires a nanny to watch their two daughters ages 5 and 3 during the weekdays while they're at work. They pay their caregiver $29,000 for the year, withhold the appropriate taxes from them and pay the required employer taxes. The family's cost as a household employer breaks down like this:


Gross Wages for the Nanny$29,000
Social Security Taxes$1,798
Medicare Taxes$420.50
Unemployment Insurance Taxes$258
Total Employer Taxes$2,476.50
Total Cost (before tax breaks):$31,476.50






Since both parents work full-time and their children are under 13 years of age, they qualify for the child care tax credit. Their income level translates to a 20% tax credit which they can take on $6,000 of their child care expenses. This means the family will receive a tax break of $1,200, bringing their employer costs down to $1,276.50. That's nearly half of what they would have paid without the tax credit!

What the example above should illustrate is that families with qualifying child care expenses should always take advantage of the child care tax credit. Use HomePay's budgeting calculator to see how much you can save and visit our tax breaks page for information on other deductions you can take.


Next Steps:


First things first—have you hired a caregiver?

If you're seeking a caregiver or a care job, visit

What type of caregiver have you hired?

Have you already made any payments to your caregiver?


If you've made payments, we'll help you track them and we'll provide your employee with pay stubs.

We'll help calculate the taxes in your state.

Enter your ZIP

What type of caregiver are you planning to hire?

When do you expect to hire someone?

How many hours do you estimate your caregiver will work?

0 - 15 hours / week
15 - 40 hours / week
40+ hours / week
24 / 7

We'll help calculate the taxes in your state.

Enter your ZIP

Great! Now set up your log in to get things going.

By clicking "Continue", you agree to our Terms of Use and Privacy Policy.