You may be wondering whether the money you spent on a day care center, a babysitter, summer camp or other provider to care for your qualifying child under age 13 or a disabled dependent of any age can earn you tax credits.
The child and dependent care credit provides a tax break for many parents who are responsible for the cost of child care. Though the credit is geared to working parents or guardians, if you were a full-time student or unemployed for part of the year, you also may qualify.
You may be able to obtain a credit of up to 35 percent of qualifying expenses of $3,000 for one child or dependent, or up to $6,000 for two or more children or dependents.
The credit is designed to assist working parents and guardians with some expenses involved in raising a child or caring for a disabled dependent. It reduces the amount of federal income taxes due, which can increase your refund. And this can free up more money for other expenses involved in raising your child.
Here are some key points to consider:
- Work-related expenses — The care must be necessary so that you can work or look for work. If you’re married, the care may be necessary for your spouse to look for work or be gainfully employed.
- Qualifying person — A qualifying person can be a child under age 13, a spouse, or a dependent who lived with you for more than half the year and is physically or mentally incapable of self-care. (There are other details as well.)
- Earned income — You need to have received wages. If you’re married and file your taxes jointly, your spouse must have earned income as well.
- Credit percentage/expense limits — The credit is worth between 20 and 35 percent of allowable expenses. The percentage depends on the income amount.
- Dependent care benefits — Special rules apply to people who get dependent care benefits from their employer.
- Care provider information — The name, address and taxpayer identification number of the care provider must be included on the return.
If you pay someone to come to your home and care for your dependent or spouse, you may have to withhold and pay Social Security and Medicare tax, as well as pay federal unemployment tax.
The IRS has some provisions in the qualification process for special situations. For example, with divorced or separated parents, the custodial parent can claim the credit.
There are other rules, exceptions and provisions as well. The key to taking full advantage of the tax breaks is to keep good records and discuss your situation with a tax professional.
The IRS has an IRS Interactive Tax Assistant tool that you can use to help determine if you’re eligible to claim the credit for expenses, but, of course, it’s always a good idea to check with a professional as well. This is especially true for the upcoming tax year, as rules may have changed since last year.