The Disappearing Child Care Credit

Source: Elaine Maag, Urban Institute, October 11, 2007

There are two primary tax benefits parents use to offset childcare costs. The Child and Dependent Care Tax Credit (CDCTC) provides a tax credit of up to 35 percent on up to $3,000 of expenses per child ($6,000 total), for a maximum credit of $1,050 per child ($2100 total). Or, employees can arrange with their employers to exclude up to $5,000 from their salary to pay for child care. While benefits from the CDCTC swamped those available from the exclusion in 2006; benefits from the child care credit are projected to decline dramatically, largely due to the increase in the number of taxpayers subject to the Alternative Minimum Tax (AMT) beginning in 2008.

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