PA Tax Update: Increased Pennsylvania Child and Dependent Care Credit

In December 2023, the Pennsylvania legislature passed new legislation to enhance the Child and Dependent Care Enhancement Tax Credit for years after December 31, 2022. The credit aims to alleviate the costs of child and dependent care for working families and is based on the federal Child and Dependent Care Tax Credit. This credit is also refundable, making it available regardless of whether taxpayers owe any PA tax.

Who Qualifies? 

Taxpayers must have received the federal credit for child and dependent care expenses to claim the Pennsylvania personal income tax credit. Additionally, they should have incurred expenses for:

• A dependent child under the age of 13;
• A spouse who was physically or mentally incapable of self-care and lived with the taxpayer for more than half the year; or
• An individual who was physically or mentally incapable of self-care, lived with the taxpayer for more than half the year, and either:
  • Was the taxpayer’s dependent; or
  • Could have been the taxpayer’s dependent, except that he or she received gross income of $4,400 or more, filed a joint return, or could have been claimed as a dependent on another taxpayer’s return.

Credit Amounts 

For tax year 2022, the credit is equal to 30% of the actual amount of employment-related expenses incurred by the taxpayer, claimed for the lesser of the federal credit during the prior tax year, or the following:

• $3,000 for one qualifying individual with respect to the taxpayer or $6,000 for two or more qualifying individuals with respect to the taxpayer.
• Multiplied by the applicable percent for the taxpayer in effect for the tax year.

• $180 (one child) or $360 (two or more children) for households earning $43,000 and above; or
• Up to $315 (one child) or $360 (two or more children) for households earning less than $43,000.

• The maximum credit will be $1,050 (one child) or $2,100 (two or more children); and
• The minimum credit will be $600 (one child) or $1,200 (two or more children).

Claiming the Credit 

When filing your PA Personal Income Tax Return (PA-40), complete PA Schedule DC, an additional form for reporting information related to your dependents and the expenses incurred for their care. Additionally, attach completed versions of Federal Form 2441 and 1040 Schedule 3 to your PA-40. These forms are required to claim the federal Child and Dependent Care Tax Credit on the federal Individual Income Tax Return (Form 1040).

For your convenience, the Pennsylvania Department of Revenue has prepared a YouTube video explaining PA Schedule DC.

Please contact your Herbein tax adviser if you have questions regarding the PA Child and Dependent Care Enhancement Tax Credit.

Article contributed by Olivia Schmid