Who receives the Child and Dependent Care Tax Credit?

Jan 2024

The full version of this issue brief includes a table with data specific to each Minnesota county and the state as a whole.

When families have safe, supportive, stable child care, children can thrive, parents can go to work or school to support their families, and employers can find and retain the workers they need. But child care can be one of the largest financial burdens that families with young children face. Minnesota’s Child and Dependent Care Tax Credit is one part of a spectrum of state investments to bring down the cost of child care, which also includes child care assistance, early learning scholarships, Head Start, and pre-K.[1]
In 2020, more than 38,000 families received Minnesota’s Child and Dependent Care Tax Credit, which is 1.3 percent of all households who filed Minnesota income taxes.[2] Families received an average annual tax credit of $501. Families claiming the Child and Dependent Care Credit lived across the state: 56 percent in Greater Minnesota and 42 percent in the seven-county Twin Cities metro area.

Minnesota’s Child and Dependent Care Credit is focused on low- and moderate-income families. For 2020, families with one child could qualify for the tax credit if their adjusted gross income was less than $65,100, and families with two or more children could qualify with incomes up to $77,100.[3] By focusing on lower-income families, Minnesota responds to one of the drawbacks of the similar federal Child and Dependent Care Tax Credit. The federal tax credit is available to even the wealthiest families, but the lowest-income families may qualify for smaller tax credit amounts than higher-income families, or no credit at all.[4]

The amount of Minnesota Child and Dependent Care Credit a family can claim is based on their income, number of qualifying children, and amount they paid for child care in order for parents to work (up to $3,000 in child care expenses for one child and up to $6,000 in expenses for two or more children). 

A disadvantage of child care tax credits is their timing. Child care assistance, early learning scholarships, and similar policies reduce the size of the child care bill that families see on a monthly basis. With tax credits, families must find the resources to pay the child care bill each month, and then receive the tax credit in one lump sum when they file their income taxes the next year.

By Jessie Luévano and Nan Madden

[1] While in this issue brief we discuss the tax credit in relation to child care, families can also claim this credit for care for a spouse or dependent who is living with a disability.
[2] Tax Year 2020 is the most current year for which detailed information is available. The data in this brief come from Minnesota Department of Revenue, Tax Year 2020 Minnesota Income Statistics by County. In this brief, we use the term “number of households” to refer to the number of income tax returns filed.
[3] Minnesota Department of Revenue, 2020 Schedule M1CD Instructions.
[4] This is because the federal credit is not refundable.