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Reduce Your Taxes with the Child Care Tax Credit

If you paid someone to care for a person in your household last year while you worked or looked for work, then you may be able to take the Child and Dependent Care Tax Credit and reduce the amount of tax owed.

Here are 12 facts you should know about this important tax credit:

  1. Child, Dependent or Spouse. You may be able to claim the credit if you paid someone to care for your child, dependent or spouse last year.
  2. Work-related Expenses. Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.
  3. Qualifying Person. The care must have been for “qualifying persons.” A qualifying person can be your child under age 13. A qualifying person can also be your spouse or dependent who lived with you for more than half the year and is physically or mentally incapable of self-care.
  4. Earned Income Required. You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. This rule also applies to you if you file a joint return. Please call if you have any questions about what qualifies as earned income.
  5. Credit Percentage / Expense Limits.The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on the amount of your income. Your allowable expenses are limited to $3,000 if you paid for the care of one qualifying person. The limit is $6,000 if you paid for the care of two or more.
  6. Dependent Care Benefits. If your employer gives you dependent care benefits, special rules apply. For more information about these rules, please call the office.
  7. Qualifying Person’s SSN.You must include the Social Security Number of each qualifying person to claim the credit.
  8. Keep Records and Receipts. Keep all your receipts and records for when you file your tax return next year. You will need the name, address and taxpayer identification number of the care provider. You must report this information when you claim the credit.
  9. Form 2441. File Form 2441, Child and Dependent Care Expenseswith your tax return to claim the credit.
  10. Joint Return if Married. Generally, married couples must file a joint return. You can still take the credit, however, if you are legally separated or living apart from your spouse.
  11. Don’t overlook vacation and summer camps.Day camps are common during the summer months. Many parents pay for day camps for their children during school vacations while they work or look for work. If this applies to you, your costs may qualify for a federal tax credit that can lower your taxes.
  12. Certain Care Does Not Qualify.You may not include the cost of certain types of care for the tax credit, including:

Overnight camps or summer school tutoring costs.

Care provided by your spouse or your child who is under age 19 at the end of the year.

Care given by a person you can claim as your dependent.

Questions?

 

Manendra Kothari may be reached at 847.524.0001 or mkothari@signatureadvisors.com.

 

Www.SchaumburgCPA.Info is an official blog of Manen Kothari CPA. To ensure compliance with the requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. One should consult their tax advisor before any of the information contained herewith applied to their individual tax situations. SK Tax Associates, Schaumburgcpa.info, or Manen Kothari cannot be held responsible for any general information stated above..

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