Child or Dependent Care Expenses

Maryland provides two separate tax benefits for child or dependent care costs: a subtraction that reduces your taxable income and a tax credit that reduces the amount of tax you owe.

Subtraction

The state subtraction benefit, which is claimed on Form 502, reduces your taxable income. If you have eligible child or dependent care expenses, first determine your federal tax credit by completing the calculation on federal Form 2441. Transfer the amount of child or dependent care expenses (not the federal tax credit) claimed on line 6 of the federal form to line 9 of Maryland Form 502. You can subtract actual expenses up to the legal maximums of $3,000 for one child or $6,000 for two or more children.

Tax credit

The tax credit, which is claimed on Form 502CR, reduces the amount of tax you owe. If you were eligible for a child and dependent care credit on your federal income tax return, you may be entitled to a tax credit on your Maryland income tax return. The credit starts at 32.5 percent of the federal credit allowed, but is phased out for taxpayers with federal adjusted gross incomes above $41,000 ($20,500 for individuals who are married, but file separate income tax returns).

No credit is allowed for individuals whose federal adjusted gross income exceeds $50,000 ($25,000 for married filing separately).

The tax credit does not affect the treatment or eligibility of the state tax subtraction for child care costs.

For more information about the tax credit, see Child and Dependent Care Credit