The Child and Dependent Care Tax Credit – Federal Tax Deductions for Child Care Expenses
Finding the right person or company to care for your child or disabled spouse is difficult, and paying for it can become very expensive.
Fortunately, you can get a break on these expenses by claiming the child and dependent care tax credit.
Depending on your income and how many of your dependents need care, you can get up to a $2,100 credit. Below is more information regarding the credit, including who qualifies as someone who needs care, what kind of expenses count, and who can claim the tax break.
In order to be eligible, the person who needed the care can fall into one of four categories:
- A qualifying child who was under 13 years old at the time care was received.
- Your spouse, who lived with you for at least half the year, and is not physically or mentally able to care for him/herself.
- A dependent of yours, other than a child, who lived with you for at least half the year, and is physically or mentally unable to take care of him/herself.
- Someone who is unable to care for him/herself and lived with you for more than half the year, and otherwise would qualify to be your dependent, save for the fact that this person had too much income, was someone else’s dependent, or filed a return as married filing jointly.
In general, you can claim the credit on expenses paid for someone who is your child (younger than 13) or otherwise dependent on you if the person is 13 or older and unable to care for him/herself.
Amounts you pay for daycare, a nanny, boarding at your child’s school, after-school care, day camp, or a home aide are a few expenses you can typically claim. However, you are not permitted to claim any amounts towards the credit that you paid to someone who is your dependent, your spouse, the child’s other parent, or another of your children who is 18 or younger.
You are permitted to claim up to $3,000 in expenses if you have one person who qualifies for care and up to $6,000 if you have two or more. However, these do not have to be split evenly. For example, if you have one infant and one eight-year-old child who both went to daycare, the infant’s care may cost more half of the $6,000, and you can still use all of those expenses towards your credit.
If your employer provides a dependent care benefit, though you may be able to write it off (or not include it in income), it reduces the maximum amount of dependent care expenses you can claim. For instance, if you receive $1,000 in dependent care benefits (that you exclude from income), and have one qualifying person, you can only claim up to $2,000 toward the credit. ($3,000 – $1,000 = $2,000)
You may only claim this credit if you paid someone else to provide care for a dependent because you were working or looking for a job. You also must file as single, head of household, or qualifying widower and must have earned income (wages, salary, tips, or self-employment income).
If you file as married filing jointly, you generally both must either have earned income to qualify to take the credit. However, if one of you was a student or unable to care for yourself while the other had earned income, you may still qualify. If one spouse had no earned income, wasn’t looking for work, wasn’t a student, and was able to care for themselves, you cannot claim the credit since it is assumed that that spouse should have been caring for the person instead of paying someone else to do it. You cannot claim this credit if you file as married filing separately.
You can receive up to 35% of your qualifying expenses as a credit, though may receive as little as 20% depending on your adjusted gross income (AGI). But the amount you use to calculate the percentage you’re eligible for is capped at $3,000 for one qualifying person or $6,000 for two or more. For example, if you have $2,000 in dependent care expenses and are eligible to claim 25% of those expenses as a credit, you can reduce the amount of tax you owe by $500 (25% x $2,000 = $500). The percentage goes down as your earned income goes up.
Also, you cannot claim expenses that exceed either your or your spouse’s earned income for the year (if one of you was a student or disabled, only the person who had earned income would count in this instance). For the purposes of the form, your earned income is the same as your AGI. If you are filing jointly, the AGI includes both of your incomes.
Below are the percentages of expenses that apply for the tax credit based on your earned income.
To claim the credit, you need to complete Form 2441, and use Form 1040 or 1040A – you can’t use Form 1040EZ to take this credit. You need to provide the name, social security number or EIN, and address of anyone that you paid to provide care. Most nursery schools, daycares, or other childcare institutions can provide you this information, as well as a total of your payments over the year. For more detailed instructions, see the Form 2441 instructions.
Have you claimed the child and dependent care tax credit? Do you have any suggestions or tips on how to identify which circumstances qualify for this credit?