26 U.S.C. § 21 — Expenses for household and dependent care services necessary for gainful employment

(a) Allowance of credit (1) In general If a taxpayer has one or more "qualifying individuals," as defined in subsection (b)(1), the taxpayer gets a credit against their tax for the year. The credit equals the "applicable percentage," defined in paragraph (2), multiplied by the taxpayer's "employment-related expenses," defined in subsection (b)(2), paid that year. (2) Applicable percentage defined Start with 50 percent. First, for every $2,000 (or part of $2,000) that the taxpayer's adjusted gross income for the year is above $15,000, subtract 1 percentage point — but never go below 35 percent. Then, for every additional $2,000 ($4,000 on a joint return), or part of it, that adjusted gross income is above $75,000 ($150,000 on a joint return), subtract another percentage point — but never go below 20 percent. (b) Definitions of qualifying individual and employment-related expenses (1) Qualifying individual A "qualifying individual" means: (A) a dependent of the taxpayer, as defined in section 152(a)(1), who has not turned 13; (B) a dependent of the taxpayer, as defined in section 152 but ignoring subsections (b)(1), (b)(2), and (d)(1)(B) of that section, who is physically or mentally unable to care for themselves and shares the taxpayer's main home for more than half the taxable year; or (C) the taxpayer's spouse, if the spouse is physically or mentally unable to care for themselves and shares the taxpayer's main home for more than half the taxable year. (2) Employment-related expenses (A) In general "Employment-related expenses" means amounts paid for household services, and amounts paid for the care of a qualifying individual — but only if those expenses let the taxpayer be gainfully employed during a period when there is at least one qualifying individual. This term does not include amounts paid for services outside the taxpayer's household at an overnight camp. (B) Exception Expenses for services outside the taxpayer's household count only if they are for the care of: (i) a qualifying individual described in paragraph (1)(A) — that is, a child under 13; or (ii) a qualifying individual not described in paragraph (1)(A) who regularly spends at least 8 hours a day in the taxpayer's household. (C) Dependent care centers Expenses for services provided outside the taxpayer's household by a "dependent care center," as defined in subparagraph (D), count only if: (i) the center complies with all applicable state or local laws and regulations, and (ii) the requirement in subparagraph (B) is met. (D) Dependent care center defined A "dependent care center" is a facility that (i) cares for more than six individuals, not counting people who live at the facility, and (ii) receives a fee, payment, or grant for providing that care — regardless of whether it operates for profit. (c) Dollar limit on amount creditable The employment-related expenses counted under subsection (a) in a taxable year cannot exceed (1) $3,000, if there is one qualifying individual, or (2) $6,000, if there are two or more. Whichever amount applies is then reduced by the total amount the taxpayer excluded from gross income under section 129 for that year. (d) Earned income limitation (1) In general Except as this subsection otherwise provides, the employment-related expenses counted under subsection (a) cannot exceed (A) the taxpayer's own earned income for the year, if the taxpayer is unmarried at year's end, or (B) whichever is less — the taxpayer's earned income or the spouse's earned income — if the taxpayer is married at year's end. (2) Special rule for spouse who is a student or incapable of caring for himself If the spouse is a full-time student, or is a qualifying individual described in subsection (b)(1)(C), then for each month that is true, the spouse is treated, for purposes of paragraph (1), as gainfully employed with earned income of at least $250 a month (if the $3,000 cap in subsection (c)(1) applies) or $500 a month (if the $6,000 cap in subsection (c)(2) applies). This rule applies to only one spouse for any given month. (e) Special rules For purposes of this section: (1) Place of abode An individual is not treated as sharing the taxpayer's main home if, at any point during the taxpayer's taxable year, the relationship between that individual and the taxpayer violates local law. (2) Married couples must file joint return If the taxpayer is married at year's end, the credit under subsection (a) is allowed only if the taxpayer and spouse file a joint return for that year. (3) Marital status An individual legally separated from their spouse under a decree of divorce or separate maintenance is not treated as married. (4) Certain married individuals living apart A married individual who files a separate return is not treated as married for this section if (A) they maintain, as their home, a household that is the main home of a qualifying individual for more than half the taxable year, and pay more than half the cost of maintaining that household during the year, and (B) their spouse is not a member of that household during the last 6 months of the taxable year. (5) Special dependency test in case of divorced parents, etc. If section 152(e) applies to a child for a calendar year, and the child is under 13 or is physically or mentally unable to care for themselves, then for any taxable year beginning in that calendar year, the child is treated as a qualifying individual under subparagraph (A) or (B) of subsection (b)(1), whichever fits, with respect to the custodial parent, as defined in section 152(e)(4)(A) — and not with respect to the noncustodial parent. (6) Payments to related individuals No credit is allowed under subsection (a) for amounts paid to an individual (A) for whom the taxpayer or the taxpayer's spouse can claim a personal-exemption deduction under section 151(c) for that taxable year, or (B) who is the taxpayer's child, as defined in section 152(f)(1), and who has not turned 19 by the end of the taxable year. Here, "taxable year" means the taxpayer's taxable year in which the service was performed. (7) Student "Student" means an individual who is a full-time student at an educational organization during each of 5 calendar months of the taxable year. (8) Educational organization "Educational organization" means an organization described in section 170(b)(1)(A)(ii). (9) Identifying information required with respect to service provider No credit is allowed under subsection (a) for an amount paid to a person unless (A) that person's name, address, and taxpayer identification number appear on the return claiming the credit, or (B) if that person is an organization described in section 501(c)(3) and exempt from tax under section 501(a), that organization's name and address appear on the return. If this information is missing, the credit can still be allowed if the taxpayer shows they used due diligence trying to provide it. (10) Identifying information required with respect to qualifying individuals No credit is allowed under this section for a qualifying individual unless that individual's taxpayer identification number appears on the return claiming the credit. (f) Regulations The Secretary must prescribe the regulations needed to carry out this section's purposes. (g) Special rules for 2021 For any taxable year beginning after December 31, 2020, and before January 1, 2022: (1) Credit made refundable If the taxpayer (or, on a joint return, either spouse) had a main home in the United States, as determined under section 32, for more than half the taxable year, the credit allowed under subsection (a) is treated as allowed under subpart C instead of this subpart. (2) Increase in dollar limit on amount creditable Subsection (c) is applied by substituting "$8,000" for "$3,000" in paragraph (1), and "$16,000" for "$6,000" in paragraph (2). (3) Increase in applicable percentage Subsection (a)(2) is applied by substituting "50 percent" for "35 percent," and "$125,000" for "$15,000." (4) Application of phaseout to high income individuals (A) In general Subsection (a)(2) is applied by substituting "the phaseout percentage" for "20 percent." (B) Phaseout percentage The "phaseout percentage" is 20 percent, reduced (but never below zero) by 1 percentage point for each $2,000 (or part of it) that the taxpayer's adjusted gross income for the year exceeds $400,000. (h) Application of credit in possessions (1) Payment to possessions with mirror code tax systems The Secretary must pay each U.S. possession with a "mirror code tax system" an amount equal to that possession's revenue loss from this section (ignoring this subsection) for taxable years beginning in or with 2021, based on information the possession's government provides. (2) Payments to other possessions The Secretary must pay each U.S. possession without a mirror code tax system an estimated amount equal to what its residents would have received under this section for taxable years beginning in or with 2021, if the possession had a mirror code tax system — but only if that possession has a Secretary-approved plan to promptly distribute the payments to its residents. (3) Coordination with credit allowed against United States income taxes For any taxable year beginning in or with 2021, no credit is allowed under this section to an individual who (A) can claim a credit against a mirror-code possession's taxes because of this section, or (B) is eligible for a payment under a plan described in paragraph (2). (4) Mirror code tax system A "mirror code tax system" is a possession's income tax system where residents' tax liability is figured by treating the possession's own tax laws as if they were the United States' income tax laws. (5) Treatment of payments For purposes of section 1324 of title 31, these possession payments are treated the same as a refund due from a credit provision referred to in subsection (b)(2) of that section.