The Child and Dependent Care Tax Credit is a way that the federal government helps put money directly back in the pockets of working families. If you have to pay for care for your children or dependents, you may qualify for the credit. However, it's important to differentiate this credit from the very popular Child Tax Credit, as they are different. Here's all that you'll need to know.

The Child and Dependent Care Tax Credit can reduce your tax liability based on eligible care expenses for children or dependents. The idea behind the credit is that you and/or your spouse can either work or look for work without having to bear the full burden of caring for your children or dependents. The amount you can receive depends on a combination of how much you spend on care and your adjusted gross income.

To qualify for the credit, you must have earned income, meaning money you earn from a job. If you live solely off investment income, such as dividends, for example, you won't qualify. You must also have a qualifying dependent. As per the IRS, a "qualifying individual" must meet the following specifications:

There are some other qualifying criteria as well. You must have incurred the actual child or dependent care expenses yourself while you were looking for work or so that you could look for work. If you're married, you must file a joint tax return. And you must also provide the Taxpayer ID (TIN), name and address of the person who provided the care. A Social Security number or Employer Identification Number will suffice.

Your adjusted gross income and the amount you spend on expenses will determine how much the Child and Dependent Care Tax Credit is worth to you. To calculate the credit, perform the following steps:

For tax year 2021, during the pandemic, the credit was increased significantly. However, in the post-pandemic world, those changes no longer remain.

The credit only applies to specific expenses directly related to the care of the qualifying person, although related household expenses are also reimbursable. However, it's important to note that IRS regulations are fairly strict as to what qualifies. For example, the costs of food, education, lodging, entertainment and clothing do not qualify. Child support payments also do not qualify. While household services like a cook, babysitter, housekeeper and maid qualify, those of a gardener, bartender and chauffeur, for example, do not. As the distinctions can sometimes be difficult to parse out, it may be worthwhile to consult a tax advisor if you have any doubt as to the validity of your expenses.

Common qualifying expenses include daycare, in-home care, and after-school programs. Expenses for children enrolled in school below the level of kindergarten do qualify as expenses for care. Transportation costs provided by a caregiver for a qualifying individual also qualify. Meals and lodging you provide for a caregiver would also qualify.

Once you've collected the appropriate information, including receipts, provider information and your income, the actual process of claiming the credit is fairly straightforward.

The Child and Dependent Care Credit can be a bit confusing to claim if you're not familiar with it. Here are some tips on how to maximize the credit and avoid making mistakes, including failing to take the maximum allowable credit: