Which type of income is not eligible for the Child and Dependent Care Credit?

The Child and Dependent Care Credit is designed to help taxpayers offset the costs incurred for the care of qualifying children or dependents while they work or seek work. To be eligible for the credit, the income considered must generally be earned income. This includes wages and self-employment income, as well as taxable tips.

Pension income, on the other hand, is considered unearned income. This type of income does not reflect active participation in the labor force, which is a requirement for claiming the Child and Dependent Care Credit. Therefore, it cannot be used to calculate the credit, as the purpose of the credit is to assist individuals with the costs of care while they are actively generating earned income.

In contrast, wages, self-employment income, and tip income are all forms of earned income and qualify towards eligibility for this credit, allowing the taxpayer to potentially claim a credit on their tax return. Thus, unearned income, such as that from pensions, is correctly identified as ineligible for the Child and Dependent Care Credit.