Which type of income must be earned to qualify for the Child and Dependent Care Credit?

To qualify for the Child and Dependent Care Credit, the taxpayer must earn income from work, which primarily includes wages, salaries, bonuses, and other types of earned income from services performed. This credit is aimed at helping families cover the costs of care for their children and dependents while they are working or looking for work.

The other types of income listed, such as alimony, pension, and investment income, do not qualify as earned income. Alimony is considered unearned income and is not derived from employment. Pension income is also classified as unearned income, derived from investments made during a taxpayer’s working life, rather than from services currently performed. Similarly, investment income, which includes interest, dividends, and capital gains, is not derived from employment or active participation in a trade or business.

Thus, the requirement for earned income underscores the intention of the Child and Dependent Care Credit to support working families who incur child care expenses while they are actively participating in the workforce.