The maximum expense limit is:

For one qualified person                     $3,000 ($8,000 for 2021)

For two OR MORE qualified people    $6,000 ($16,000 for 2021)

The total amount of employment-related expenses that do not exceed the annual dollar limitation may be taken into account although the amount of employment-related expenses attributable to one qualifying individual exceeds 50 percent of the limitation. For example, a taxpayer with expenses in 2022 of $4,000 for one qualifying individual and $1,500 for a second qualifying individual may take into account the full $5,500. (Reg. 1.21-2(a)(3), IRS 2020 Form 2441, Instructions Page 4)

What comes as a surprise to many is that when there are 2 or more qualifying children, the cap for 2 or more will apply to the expenses of all the qualifying children as a whole even if the expenses exceed the one-qualified-person cap for any one of them.

If you have been unaware of the application of the $6,000 expense limit in the past, as many are, and arbitrarily only entered expenses up to $3,000 for any one child or failed to enter a qualifying child simply because that child did not have any care expenses, you may have incorrectly limited your client’s childcare credit. If so, you may wish to review your returns that included childcare credits to see if amended tax returns are in order.

Limit Reduced by Employer-Provided Dependent Care Assistance Plans - The limit must be reduced by the amount a taxpayer excludes from gross income under an employer-provided dependent care assistance plan (see more on this later in the chapter).

Regardless of the taxpayer's method of accounting, the credit is allowable only in the tax year the services are provided or the tax year the expenses are paid, whichever is later.