The Child and Dependent Care Credit
Well, actually we have the Congress to thank since the IRS “merely” administers the law, but if you are a parent, you should be aware that if parents pay for childcare or daycare while they work, the costs may qualify for a federal tax credit that can lower their credit. The IRS likes to remind us of these credits (honest) around this time, and they point out facts you should know:
- Your expense must be for the care of one or more qualifying persons. Usually your dependent child or children under age 13 qualify.
- Your expenses for care must be work-related. Briefly this means you must pay for the care so you can work or look for work—not just go to the movie without the kids.
- You must have “earned” income, such a wages, salaries and tips, or earnings from self-employment. Your spouse must also have earned income if you file jointly, unless he or she is a full time student, or mentally or physically incapable of self-care.
- You may qualify whether you pay for care at home, at a daycare facility or at a day camp.
- The credit is a percentage of the qualified expenses you pay. It can be as much as 35% of your expenses, depending on your income. The total expense you can use for the credit in a year is limited to $3,000 for one qualifying person, or $6,000 for two or more.
- Overnight camp or summer school tutoring costs don’t qualify.
- Keep all your receipts and records. Note the name, address and Social Security number or employer identification number of the care provider. We must have this to report it on your tax return.
- This is not just a summer benefit. If you qualify you can claim it for care you provide throughout the year.
The above is only a summary, and doesn’t cover all the rules (are you surprised?) For more about this rule, see Publication 503, Child and Dependent Care Expenses.