Are there more stipulations to the child and dependent care credit?

[vividalchemist]

I am attempting to file my taxes and when I put all the numbers in, it states I only get $1,200 credit. 

A little background:

• My wife and I both work full time
• We claimed Married-Joint
• We have 2 children (AGE 3) in daycare
• We paid $10,700 in childcare
• Our AGI is $101,878
• We took the standard $24,400 deductions

According to the help center and the IRS website, the deduction is:

• The credit is from 20% to 35% of your child care expenses, depending on your adjusted gross income (AGI). You can claim a credit for up to $3,000 in expenses for one child, or up to $6,000 in expenses for two or more children. If you use a dependent care account at work, those benefits are subtracted from the $3,000 or $6,000 cap.

My issue is that the $1,200 credit we received is only 11.214% of the total amount we paid and not the 20% which is the lowest, which we would qualify for because our AGI is above $43,000.

Did I miss something?  Thank you.

[SusanY1]

The other limiting factor for the child and dependent care credit is the amount of tax that you owe, as it is a nonrefundable credit. That may be what is limiting your credit, and it is what I would check next. 

Here is how to check to see if your other credits have already reduced your tax to zero:

1. Log in to your tax return at TurboTax.com.
2. Click on Tax Tools on the left side of the screen (you may need to click on Continue in the center first).
3. Click on Tools.
4. In the box that pops up in the center, click on View Tax Summary.

If there is a 0 on the line Total Tax, then that is why you see less than the full amount of the credit.  

[ghostlyone]

Tl;dr - The government won't actually give you money (mostly true), so if the full $4k would bring your actual taxes paid for the year below zero, you can't have it. 

The CTC has nothing to do with daycare costs. Those 20-35% numbers are just an indication of what they intend by the credit. Daycare is a deduction though, so that's nice. Anyway, your number probably has something to do with the rest of your tax situation. Your refund can't bring your taxes owed for the year below zero.

My own case: I got the full $4k for my 3 and 4 year old this year. However, this has never happened before. In previous years I had other credits and deductions that quickly plummeted my taxes owed to zero. If you pay $10k in taxes during the year, your refund check can't exceed $10k (zero taxes paid). If that tax credit would put your refund check over $10k, that just can't happen, so you get it reduced. Technically, it's not the CTC anymore if that happens; it's the ACTC, which caps at $1400.

More reading if you're interested:

https://www.taxpolicycenter.org/briefing-book/what-child-tax-credit

[AmyC]

Child and dependent care is a deduction that lowers your tax liability but cannot go below zero tax liability.  If your tax liability is less than you dependent care credit, you will lose the excess because it is non-refundable.

The child tax credit also reduces your tax liability. Unlike the dependent care, it has another part, the Additional Child Tax Credit which IS a refundable credit. Some people pay nothing in taxes and get back thousands between the EIC and ACTC which are both refundable. The IRS is making sure lower income taxpayers get extra help.

[AmeliesUncle]

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@vividalchemist wrote:

According to the help center and the IRS website, the deduction is:

• The credit is from 20% to 35% of your child care expenses, depending on your adjusted gross income (AGI). You can claim a credit for up to $3,000 in expenses for one child, or up to $6,000 in expenses for two or more children.

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You are allowed to claim up to $6,000 of expenses.  At your income, you qualify for a 20% credit.  So 20% of $6,000 is a $1200 credit.