You may be able to claim a credit for child and dependent care, if you pay someone to care for your dependent child who is under the age of 13, or for your spouse or other dependent who is not able to care for himself or herself. You must have incurred this expenditure so that you (and your spouse, if you are married) could work or look for work. If you are married, both you and your spouse must have some form of earned income, unless one spouse either was a full-time student for 5 months of the tax year, or was physically or mentally incapable of self-care.
The child and dependent care credit, which is a nonrefundable credit, is generally a percentage of the amount of the work-related child and dependent care expenses you paid to a care provider. The amount of this percentage depends on your adjusted gross income.
The tax credit for child and dependent care expenses is intended only to assist those who incur these expenses in order to enable them to earn income. Therefore, you can only claim dependent care expenses that the IRS considers to be work-related. Dependent care expenses incurred are considered work-related only if they are: (a) incurred to allow the taxpayer to work or look for work, and (b) are for a qualifying person’s care.
To claim this credit, the qualifying person must have lived with you for more than half of the year. (There are exceptions for the birth or death of a qualifying person, or for a child of divorced or separated parents.)
To be eligible to claim the credit, the expenses incurred must be for the qualifying person’s well-being and protection; for example, placing your child in a day care center while you work or look for work.
The amount of the work-related expenses that is eligible for the credit is limited to the lowest of these three amounts:
• The actual expenses you incurred.
• A dollar limit of $3,000 for one qualifying person; or $6,000 for two or more qualifying persons.
• Your earned income. (If you are filing a joint return, the earned income that you will use to do this comparison cannot be more than the smaller of each spouses’ earned income.)
The actual amount of the credit you receive is a percentage of the eligible work-related expenses you incurred. This ranges between 20% and 35% of your qualifying expenses, depending on your adjusted gross income, with the percentage decreasing as your income increases. For adjusted gross income above $43,000, the maximum credit you can claim is 20% of eligible expenses. Therefore, if you earn over $43,000, the maximum you can receive for this credit is $1,200 (20% of $6,000).
To claim the credit for child and dependent care expenses, you need to fill out Parts I and II of Form 2441, Child and Dependent Care Expenses. This form requires you to provide identification information (SSN or EIN) for the care provider(s) and the Social Security numbers of the qualifying children or disabled persons. If your employer provided you with dependent care benefits, you must report this amount (which is shown in box 10 of your W-2) by completing Part III of Form 2441.
(Off the shelf tax software, such as Turbo Tax, will bring up Form 2441 for you to populate with the appropriate information, and the software will compute the amount to be included in your tax return.)
The primary objective of this article is to empower taxpayers to learn to do their own taxes. For detailed information on how to claim all your tax credits, grab yourself a copy of “Doing Your Own Taxes is as Easy as 1, 2, 3” ($6.98) on TaxConnections.com.