---
kind: "range"
citation: "26 C.F.R. §§ 1.21-1–1.21-4"
title: "26"
from: "1.21-1"
to: "1.21-4"
count: 4
url: "https://uscodex.org/cfr/26/1.21-1..1.21-4"
---

# §1.21-1. Expenses for household and dependent care services necessary for gainful employment.

- (a) **In general.**
  - (1) [Section 21](/cfr/26/21.md) allows a credit to a taxpayer against the tax imposed by chapter 1 for employment-related expenses for household services and care (as defined in [paragraph (d)](#d) of this section) of a qualifying individual (as defined in [paragraph (b)](#b) of this section). The purpose of the expenses must be to enable the taxpayer to be gainfully employed (as defined in [paragraph (c)](#c) of this section). For taxable years beginning after December 31, 2004, a qualifying individual must have the same principal place of abode (as defined in [paragraph (g)](#g) of this section) as the taxpayer for more than one-half of the taxable year. For taxable years beginning before January 1, 2005, the taxpayer must maintain a household (as defined in [paragraph (h)](#h) of this section) that includes one or more qualifying individuals.
  - (2) The amount of the credit is equal to the applicable percentage of the employment-related expenses that may be taken into account by the taxpayer during the taxable year (but subject to the limits prescribed in [§ 1.21-2](/cfr/26/1.21-2.md)). Applicable percentage means 35 percent reduced by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer's adjusted gross income for the taxable year exceeds $15,000, but not less than 20 percent. For example, if a taxpayer's adjusted gross income is $31,850, the applicable percentage is 26 percent.
  - (3) Expenses may be taken as a credit under [section 21](/cfr/26/21.md), regardless of the taxpayer's method of accounting, only in the taxable year the services are performed or the taxable year the expenses are paid, whichever is later.
  - (4) The requirements of [section 21](/cfr/26/21.md) and [§§ 1.21-1 through 1.21-4](/cfr/26/1.21-1..1.21-4.md) are applied at the time the services are performed, regardless of when the expenses are paid.
  - (5) **Examples.** The provisions of this [paragraph (a)](#a) are illustrated by the following examples.
- (b) **Qualifying individual—**
  - (1) **In general.** For taxable years beginning after December 31, 2004, a qualifying individual is—
    - (i) The taxpayer's dependent (who is a qualifying child within the meaning of [section 152](/cfr/26/152.md)) who has not attained age 13;
    - (ii) The taxpayer's dependent (as defined in [section 152](/cfr/26/152.md), determined without regard to subsections [(b)(1)](#b-1), [(b)(2)](#b-2), and (d)(1)(B)) who is physically or mentally incapable of self-care and who has the same principal place of abode as the taxpayer for more than one-half of the taxable year; or
    - (iii) The taxpayer's spouse who is physically or mentally incapable of self-care and who has the same principal place of abode as the taxpayer for more than one-half of the taxable year.
  - (2) **Taxable years beginning before January 1, 2005.** For taxable years beginning before January 1, 2005, a qualifying individual is—
    - (i) The taxpayer's dependent for whom the taxpayer is entitled to a deduction for a personal exemption under [section 151(c)](/cfr/26/151.md?p=c) and who is under age 13;
    - (ii) The taxpayer's dependent who is physically or mentally incapable of self-care; or
    - (iii) **The taxpayer's spouse who is physically or mentally incapable of self-care.**
  - (3) **Qualification on a daily basis.** The status of an individual as a qualifying individual is determined on a daily basis. An individual is not a qualifying individual on the day the status terminates.
  - (4) **Physical or mental incapacity.** An individual is physically or mentally incapable of self-care if, as a result of a physical or mental defect, the individual is incapable of caring for the individual's hygiene or nutritional needs, or requires full-time attention of another person for the individual's own safety or the safety of others. The inability of an individual to engage in any substantial gainful activity or to perform the normal household functions of a homemaker or care for minor children by reason of a physical or mental condition does not of itself establish that the individual is physically or mentally incapable of self-care.
  - (5) **Special test for divorced or separated parents or parents living apart—**
    - (i) **Scope.** This [paragraph (b)(5)](#b-5) applies to a child (as defined in [section 152(f)(1)](/cfr/26/152.md?p=f-1) for taxable years beginning after December 31, 2004, and in [section 151(c)(3)](/cfr/26/151.md?p=c-3) for taxable years beginning before January 1, 2005) who—
      - (A) Is under age 13 or is physically or mentally incapable of self-care;
      - (B) Receives over one-half of his or her support during the calendar year from one or both parents who are divorced or legally separated under a decree of divorce or separate maintenance, are separated under a written separation agreement, or live apart at all times during the last 6 months of the calendar year; and
      - (C) **Is in the custody of one or both parents for more than one-half of the calendar year.**
    - (ii) **Custodial parent allowed the credit.** A child to whom this [paragraph (b)(5)](#b-5) applies is the qualifying individual of only one parent in any taxable year and is the qualifying child of the custodial parent even if the noncustodial parent may claim the dependency exemption for that child for that taxable year. See [section 21(e)(5)](/cfr/26/21.md?p=e-5). The custodial parent is the parent having custody for the greater portion of the calendar year. See [section 152(e)(4)(A)](/cfr/26/152.md?p=e-4-A).
  - (6) **Example.** The provisions of this [paragraph (b)](#b) are illustrated by the following examples.
- (c) **Gainful employment—**
  - (1) **In general.** Expenses are employment-related expenses only if they are for the purpose of enabling the taxpayer to be gainfully employed. The expenses must be for the care of a qualifying individual or household services performed during periods in which the taxpayer is gainfully employed or is in active search of gainful employment. Employment may consist of service within or outside the taxpayer's home and includes self-employment. An expense is not employment-related merely because it is paid or incurred while the taxpayer is gainfully employed. The purpose of the expense must be to enable the taxpayer to be gainfully employed. Whether the purpose of an expense is to enable the taxpayer to be gainfully employed depends on the facts and circumstances of the particular case. Work as a volunteer or for a nominal consideration is not gainful employment.
  - (2) **Determination of period of employment on a daily basis—**
    - (i) **In general.** Expenses paid for a period during only part of which the taxpayer is gainfully employed or in active search of gainful employment must be allocated on a daily basis.
    - (ii) **Exception for short, temporary absences.** A taxpayer who is gainfully employed is not required to allocate expenses during a short, temporary absence from work, such as for vacation or minor illness, provided that the care-giving arrangement requires the taxpayer to pay for care during the absence. An absence of 2 consecutive calendar weeks is a short, temporary absence. Whether an absence longer than 2 consecutive calendar weeks is a short, temporary absence is determined based on all the facts and circumstances.
    - (iii) **Part-time employment.** A taxpayer who is employed part-time generally must allocate expenses for dependent care between days worked and days not worked. However, if a taxpayer employed part-time is required to pay for dependent care on a periodic basis (such as weekly or monthly) that includes both days worked and days not worked, the taxpayer is not required to allocate the expenses. A day on which the taxpayer works at least 1 hour is a day of work.
  - (3) **Examples.** The provisions of this [paragraph (c)](#c) are illustrated by the following examples:
- (d) **Care of qualifying individual and household services—**
  - (1) **In general.** To qualify for the dependent care credit, expenses must be for the care of a qualifying individual. Expenses are for the care of a qualifying individual if the primary function is to assure the individual's well-being and protection. Not all expenses relating to a qualifying individual are for the individual's care. Amounts paid for food, lodging, clothing, or education are not for the care of a qualifying individual. If, however, the care is provided in such a manner that the expenses cover other goods or services that are incidental to and inseparably a part of the care, the full amount is for care.
  - (2) **Allocation of expenses.** If an expense is partly for household services or for the care of a qualifying individual and partly for other goods or services, a reasonable allocation must be made. Only so much of the expense that is allocable to the household services or care of a qualifying individual is an employment-related expense. An allocation must be made if a housekeeper or other domestic employee performs household duties and cares for the qualifying children of the taxpayer and also performs other services for the taxpayer. No allocation is required, however, if the expense for the other purpose is minimal or insignificant or if an expense is partly attributable to the care of a qualifying individual and partly to household services.
  - (3) **Household services.** Expenses for household services may be employment-related expenses if the services are performed in connection with the care of a qualifying individual. The household services must be the performance in and about the taxpayer's home of ordinary and usual services necessary to the maintenance of the household and attributable to the care of the qualifying individual. Services of a housekeeper are household services within the meaning of this [paragraph (d)(3)](#d-3) if the services are provided, at least in part, to the qualifying individual. Such services as are performed by chauffeurs, bartenders, or gardeners are not household services.
  - (4) **Manner of providing care.** The manner of providing care need not be the least expensive alternative available to the taxpayer. The cost of a paid caregiver may be an expense for the care of a qualifying individual even if another caregiver is available at no cost.
  - (5) **School or similar program.** Expenses for a child in nursery school, pre-school, or similar programs for children below the level of kindergarten are for the care of a qualifying individual and may be employment-related expenses. Expenses for a child in kindergarten or a higher grade are not for the care of a qualifying individual. However, expenses for before- or after-school care of a child in kindergarten or a higher grade may be for the care of a qualifying individual.
  - (6) **Overnight camps.** Expenses for overnight camps are not employment-related expenses.
  - (7) **Day camps.**
    - (i) The cost of a day camp or similar program may be for the care of a qualifying individual and an employment-related expense, without allocation under [paragraph (d)(2)](#d-2) of this section, even if the day camp specializes in a particular activity. Summer school and tutoring programs are not for the care of a qualifying individual and the costs are not employment-related expenses.
    - (ii) A day camp that meets the definition of dependent care center in [section 21(b)(2)(D)](/cfr/26/21.md?p=b-2-D) and [paragraph (e)(2)](#e-2) of this section must comply with the requirements of [section 21(b)(2)(C)](/cfr/26/21.md?p=b-2-C) and [paragraph (e)(2)](#e-2) of this section.
  - (8) **Transportation.** The cost of transportation by a dependent care provider of a qualifying individual to or from a place where care of that qualifying individual is provided may be for the care of the qualifying individual. The cost of transportation not provided by a dependent care provider is not for the care of the qualifying individual.
  - (9) **Employment taxes.** Taxes under [sections 3111](/cfr/26/3111.md) (relating to the Federal Insurance Contributions Act) and 3301 (relating to the Federal Unemployment Tax Act) and similar state payroll taxes are employment-related expenses if paid in respect of wages that are employment-related expenses.
  - (10) **Room and board.** The additional cost of providing room and board for a caregiver over usual household expenditures may be an employment-related expense.
  - (11) **Indirect expenses.** Expenses that relate to, but are not directly for, the care of a qualifying individual, such as application fees, agency fees, and deposits, may be for the care of a qualifying individual and may be employment-related expenses if the taxpayer is required to pay the expenses to obtain the related care. However, forfeited deposits and other payments are not for the care of a qualifying individual if care is not provided.
  - (12) **Examples.** The provisions of this [paragraph (d)](#d) are illustrated by the following examples:
- (e) **Services outside the taxpayer's household—**
  - (1) **In general.** The credit is allowable for expenses for services performed outside the taxpayer's household only if the care is for one or more qualifying individuals who are described in this section at—
    - (i) Paragraph [(b)(1)(i)](#b-1-i) or [(b)(2)(i)](#b-2-i); or
    - (ii) Paragraph [(b)(1)(ii)](#b-1-ii), [(b)(2)(ii)](#b-2-ii), [(b)(1)(iii)](#b-1-iii), or [(b)(2)(iii)](#b-2-iii) and regularly spend at least 8 hours each day in the taxpayer's household.
  - (2) **Dependent care centers—**
    - (i) **In general.** The credit is allowable for services performed by a dependent care center only if—
      - (A) The center complies with all applicable laws and regulations, if any, of a state or local government, such as state or local licensing requirements and building and fire code regulations; and
      - (B) **The requirements provided in this paragraph (e) are met.**
    - (ii) **Definition.** The term dependent care center means any facility that provides full-time or part-time care for more than six individuals (other than individuals who reside at the facility) on a regular basis during the taxpayer's taxable year, and receives a fee, payment, or grant for providing services for the individuals (regardless of whether the facility is operated for profit). For purposes of the preceding sentence, a facility is presumed to provide full-time or part-time care for six or fewer individuals on a regular basis during the taxpayer's taxable year if the facility has six or fewer individuals (including the taxpayer's qualifying individual) enrolled for full-time or part-time care on the day the qualifying individual is enrolled in the facility (or on the first day of the taxable year the qualifying individual attends the facility if the qualifying individual was enrolled in the facility in the preceding taxable year) unless the Internal Revenue Service demonstrates that the facility provides full-time or part-time care for more than six individuals on a regular basis during the taxpayer's taxable year.
- (f) **Reimbursed expenses.** Employment-related expenses for which the taxpayer is reimbursed (for example, under a dependent care assistance program) may not be taken into account for purposes of the credit.
- (g) **Principal place of abode.** For purposes of this section, the term principal place of abode has the same meaning as in [section 152](/cfr/26/152.md).
- (h) **Maintenance of a household—**
  - (1) **In general.** For taxable years beginning before January 1, 2005, the credit is available only to a taxpayer who maintains a household that includes one or more qualifying individuals. A taxpayer maintains a household for the taxable year (or lesser period) only if the taxpayer (and spouse, if applicable) occupies the household and furnishes over one-half of the cost for the taxable year (or lesser period) of maintaining the household. The household must be the principal place of abode for the taxable year of the taxpayer and the qualifying individual or individuals.
  - (2) **Cost of maintaining a household.**
    - (i) Except as provided in [paragraph (h)(2)(ii)](#h-2-ii) of this section, for purposes of this section, the term cost of maintaining a household has the same meaning as in [§ 1.2-2(d)](/cfr/26/1.2-2.md?p=d) without regard to the last sentence thereof.
    - (ii) The cost of maintaining a household does not include the value of services performed in the household by the taxpayer or by a qualifying individual described in [paragraph (b)](#b) of this section or any expense paid or reimbursed by another person.
  - (3) **Monthly proration of annual costs.** In determining the cost of maintaining a household for a period of less than a taxable year, the cost for the entire taxable year must be prorated on the basis of the number of calendar months within that period. A period of less than a calendar month is treated as a full calendar month.
  - (4) **Two or more families.** If two or more families occupy living quarters in common, each of the families is treated as maintaining a separate household. A taxpayer is maintaining a household if the taxpayer provides more than one-half of the cost of maintaining the separate household. For example, if two unrelated taxpayers with their respective children occupy living quarters in common and each taxpayer pays more than one-half of the household costs for each respective family, each taxpayer is treated as maintaining a household.
- (i) **Reserved.**
- (j) **Expenses qualifying as medical expenses—**
  - (1) **In general.** A taxpayer may not take an amount into account as both an employment-related expense under [section 21](/cfr/26/21.md) and an expense for medical care under [section 213](/cfr/26/213.md).
  - (2) **Examples.** The provisions of this [paragraph (j)](#j) are illustrated by the following examples:
- (k) **Substantiation.** A taxpayer claiming a credit for employment-related expenses must maintain adequate records or other sufficient evidence to substantiate the expenses in accordance with [section 6001](/cfr/26/6001.md) and the regulations thereunder.
- (l) **Effective/applicability date.** This section and [§§ 1.21-2 through 1.21-4](/cfr/26/1.21-2..1.21-4.md) apply to taxable years ending after August 14, 2007.

# §1.21-2. Limitations on amount creditable.

- (a) **Annual dollar limitation.**
  - (1) The amount of employment-related expenses that may be taken into account under [§ 1.21-1(a)](/cfr/26/1.21-1.md?p=a) for any taxable year cannot exceed—
    - (i) $2,400 ($3,000 for taxable years beginning after December 31, 2002, and before January 1, 2011) if there is one qualifying individual with respect to the taxpayer at any time during the taxable year; or
    - (ii) $4,800 ($6,000 for taxable years beginning after December 31, 2002, and before January 1, 2011) if there are two or more qualifying individuals with respect to the taxpayer at any time during the taxable year.
  - (2) The amount determined under [paragraph (a)(1)](#a-1) of this section is reduced by the aggregate amount excludable from gross income under [section 129](/cfr/26/129.md) for the taxable year.
  - (3) A taxpayer may take into account the total amount of employment-related expenses that do not exceed the annual dollar limitation although the amount of employment-related expenses attributable to one qualifying individual is disproportionate to the total employment-related expenses. For example, a taxpayer with expenses in 2007 of $4,000 for one qualifying individual and $1,500 for a second qualifying individual may take into account the full $5,500.
  - (4) A taxpayer is not required to prorate the annual dollar limitation if a qualifying individual ceases to qualify (for example, by turning age 13) during the taxable year. However, the taxpayer may take into account only amounts that qualify as employment-related expenses before the disqualifying event. See also [§ 1.21-1(b)(6)](/cfr/26/1.21-1.md?p=b-6).
- (b) **Earned income limitation—**
  - (1) **In general.** The amount of employment-related expenses that may be taken into account under [section 21](/cfr/26/21.md) for any taxable year cannot exceed—
    - (i) For a taxpayer who is not married at the close of the taxable year, the taxpayer's earned income for the taxable year; or
    - (ii) For a taxpayer who is married at the close of the taxable year, the lesser of the taxpayer's earned income or the earned income of the taxpayer's spouse for the taxable year.
  - (2) **Determination of spouse.** For purposes of this [paragraph (b)](#b), a taxpayer must take into account only the earned income of a spouse to whom the taxpayer is married at the close of the taxable year. The spouse's earned income for the entire taxable year is taken into account, however, even though the taxpayer and the spouse were married for only part of the taxable year. The taxpayer is not required to take into account the earned income of a spouse who died or was divorced or separated from the taxpayer during the taxable year. See [§ 1.21-3(b)](/cfr/26/1.21-3.md?p=b) for rules providing that certain married taxpayers legally separated or living apart are treated as not married.
  - (3) **Definition of earned income.** For purposes of this section, the term earned income has the same meaning as in [section 32(c)(2)](/cfr/26/32.md?p=c-2) and the regulations thereunder.
  - (4) **Attribution of earned income to student or incapacitated spouse.**
    - (i) For purposes of this section, a spouse is deemed, for each month during which the spouse is a full-time student or is a qualifying individual described in § [1.21-1(b)(1)(iii)](/cfr/26/1.21-1.md?p=b-1-iii) or [(b)(2)(iii)](/cfr/26/1.21-1.md?p=b-2-iii), to be gainfully employed and to have earned income of not less than—
      - (A) $200 ($250 for taxable years beginning after December 31, 2002, and before January 1, 2011) if there is one qualifying individual with respect to the taxpayer at any time during the taxable year; or
      - (B) $400 ($500 for taxable years beginning after December 31, 2002, and before January 1, 2011) if there are two or more qualifying individuals with respect to the taxpayer at any time during the taxable year.
    - (ii) For purposes of this [paragraph (b)(4)](#b-4), a full-time student is an individual who, during each of 5 calendar months of the taxpayer's taxable year, is enrolled as a student for the number of course hours considered to be a full-time course of study at an educational organization as defined in [section 170(b)(1)(A)(ii)](/cfr/26/170.md?p=b-1-A-ii). The enrollment for 5 calendar months need not be consecutive.
    - (iii) Earned income may be attributed under this [paragraph (b)(4)](#b-4), in the case of any husband and wife, to only one spouse in any month.
- (c) **Examples.** The provisions of this section are illustrated by the following examples:
- (d) **Cross-reference.** For an additional limitation on the credit under [section 21](/cfr/26/21.md), see [section 26](/cfr/26/26.md).

# §1.21-3. Special rules applicable to married taxpayers.

- (a) **Joint return requirement.** No credit is allowed under [section 21](/cfr/26/21.md) for taxpayers who are married (within the meaning of [section 7703](/cfr/26/7703.md) and the regulations thereunder) at the close of the taxable year unless the taxpayer and spouse file a joint return for the taxable year. See [section 6013](/cfr/26/6013.md) and the regulations thereunder relating to joint returns of income tax by husband and wife.
- (b) **Taxpayers treated as not married.** The requirements of [paragraph (a)](#a) of this section do not apply to a taxpayer who is legally separated under a decree of divorce or separate maintenance or who is treated as not married under [section 7703(b)](/cfr/26/7703.md?p=b) and the regulations thereunder (relating to certain married taxpayers living apart). A taxpayer who is treated as not married under this [paragraph (b)](#b) is not required to take into account the earned income of the taxpayer's spouse for purposes of applying the earned income limitation on the amount of employment-related expenses under [§ 1.21-2(b)](/cfr/26/1.21-2.md?p=b).
- (c) **Death of married taxpayer.** If a married taxpayer dies during the taxable year and the survivor may make a joint return with respect to the deceased spouse under [section 6013(a)(3)](/cfr/26/6013.md?p=a-3), the credit is allowed for the year only if a joint return is made. If, however, the surviving spouse remarries before the end of the taxable year in which the deceased spouse dies, a credit may be allowed on the decedent spouse's separate return.

# §1.21-4. Payments to certain related individuals.

- (a) **In general.** A credit is not allowed under [section 21](/cfr/26/21.md) for any amount paid by the taxpayer to an individual—
  - (1) For whom a deduction under [section 151(c)](/cfr/26/151.md?p=c) (relating to deductions for personal exemptions for dependents) is allowable either to the taxpayer or the taxpayer's spouse for the taxable year;
  - (2) Who is a child of the taxpayer (within the meaning of [section 152(f)(1)](/cfr/26/152.md?p=f-1) for taxable years beginning after December 31, 2004, and [section 151(c)(3)](/cfr/26/151.md?p=c-3) for taxable years beginning before January 1, 2005) and is under age 19 at the close of the taxable year;
  - (3) Who is the spouse of the taxpayer at any time during the taxable year; or
  - (4) Who is the parent of the taxpayer's child who is a qualifying individual described in § [1.21-1(b)(1)(i)](/cfr/26/1.21-1.md?p=b-1-i) or [(b)(2)(i)](/cfr/26/1.21-1.md?p=b-2-i).
- (b) **Payments to partnerships or other entities.** In general, [paragraph (a)](#a) of this section does not apply to services performed by partnerships or other entities. If, however, the partnership or other entity is established or maintained primarily to avoid the application of [paragraph (a)](#a) of this section to permit the taxpayer to claim the credit, for purposes of [section 21](/cfr/26/21.md), the payments of employment-related expenses are treated as made directly to each partner or owner in proportion to that partner's or owner's ownership interest. Whether a partnership or other entity is established or maintained to avoid the application of [paragraph (a)](#a) of this section is determined based on the facts and circumstances, including whether the partnership or other entity is established for the primary purpose of caring for the taxpayer's qualifying individual or providing household services to the taxpayer.
- (c) **Examples.** The provisions of this section are illustrated by the following examples: