Unemployment compensation is not included in earned income. A net loss from self-employment reduces earned income. Earned income also includes any strike benefits and disability pay you report as wages. Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. You (and your spouse in the case of a joint return) must have earned income to claim the credit. Your spouse who is out of work during the year must be actively looking for employment, and the work-related expenses must be incurred so that you and your spouse can work or look for work as discussed in Q18. For information regarding changes to the credit for 2021 only, see Q6 through Q14. Further information is found below and in IRS Publication 503, Child and Dependent Care Expenses. The following FAQs can help you learn if you are eligible and if eligible, how to calculate your credit. However, taxpayers with an adjusted gross income over $438,000 are not eligible for this credit even though they may have previously been able to claim this credit.

This means that more taxpayers will be eligible for the credit for the first time and that, for many taxpayers, the amount of the credit will be larger than in prior years. For 2021, the American Rescue Plan Act of 2021, enacted March 11, 2021, made the credit substantially more generous (up to $4,000 for one qualifying person and $8,000 for two or more qualifying persons) and potentially refundable, so you might not have to owe taxes to claim the credit (so long as you meet the other requirements). The credit is calculated based on your income and a percentage of expenses that you incur for the care of qualifying persons to enable you to go to work, look for work, or attend school. The child and dependent care credit is a tax credit that may help you pay for the care of eligible children and other dependents (qualifying persons).

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