Did you spend any money on childcare expenses this year?
You can get some of that back by claiming the Child and Dependent Care Tax Credit. You can also use the child and dependents tax credit calculator to see how much you qualify for.
What are the Requirements?
The following list of criteria must be met in its entirety in order to qualify for the child care tax credit:
- You and your spouse must file as married filing jointly. There are some filing exceptions, however.
- You pay for care (along with the spouse if you’re married) so that you can work or find work.
- You have a certain amount of earned income. If you’re married and you live in the same home as your spouse, you need to have earned income. But if your spouse is a full-time student or is disabled, the IRS will assign a different earned income amount to that spouse. That’s $250 per month for one child or $500 for two or more children.
- You and the dependent must live in the same house for more than six months of the year.
- The caregiver can’t be your spouse, the parent of a qualifying child below the age of 13, or any person you already claim as a dependent.
- A child who provides care must be 19 or older by the end of the tax year. They also can’t be claimed as a dependent.
If you don’t file jointly, you may still be able to claim the child care credit. But to do this you must pay more than half the cost of maintaining the household and you and your spouse must use it as their primary residence for more than six months of the tax year.
Alternatively, if your spouse wasn’t a member of your household during the previous six months of the tax year you can claim without filing under the married filing jointly status.
Who is a Qualifying Person?
Care must be provided to one or more of the following qualifying persons in order to claim the credit.
A child can qualify if they’re under the age of 13 and you claim them as a dependent. There’s an exception to this when it comes to the children of separates or divorced parents. The child will then be considered a qualifying child of the custodial parent.
A spouse or dependent of any age can qualify if they’re physically or mentally unable to care for themselves. They should also have the same primary residence as you do.
What are Qualifying Expenses?
Qualifying expenses can get extremely complex and cause a lot of confusion. The general principle of them is that they must be relevant to safeguarding the well-being of a dependent. They should also be considered necessary so you or spouse is able to go to work or look for work.
A qualifying expense may involve a day care center. This applies if the dependent spends at least eight hours in your home on a regular basis.
When a day care center is involved, the center must comply with all local and state laws for it to qualify. It must also be providing paid care to more than six people.
Let’s look at some other expenses.
Expenses for In-Home Care – Cooking, basic housework, the cost of care.
Gross Wages Paid to Care Services – This also includes your portion of Medicare, Social Security, unemployment taxes, payroll taxes, and any meals and lodging you provide to the person providing care services.
Keep in mind that transportation to a childcare facility, overnight camp fees, educational expenses above the kindergarten level, and any chauffeur or gardening services don’t qualify.
Sometimes before and after-school programs qualify, but it must be for the care of the child, rather than just leisure. Costs at the kindergarten level, such as nursery school, can qualify.
Calculating How Much the Credit is Worth to You
The Child and Dependent Care Tax Credit is worth anywhere from 20% to 35% of qualifying care expenses. Your Adjusted Gross Income (AGI) determines how much you can claim back. You can calculate your credit here.
There are also maximum amounts you must consider. The maximum is $3,000 for a single qualifying person or $6,000 for two or more qualifying people.
To claim the credit, you’ll need to fill out Form 2441 and attach it to your individual tax form.
Your Employer Could Also Provide Benefits
It’s not uncommon for employers to offer childcare benefits, such as care on-site for the children of employees. They may even offer direct payments for care offered by a third-party service. Sometimes there are also special childcare expenses accounts set aside for employees who want to set aside a portion of their salaries.
You need to remember that if these childcare benefits are worth more than $5,000, your employer must report it as taxable income. Anything under $5,000 doesn’t count as taxable income.
However, you may be entitled to a Section 125 plan from your employer. These may be known as Flexible Spending Accounts (FSAs) or cafeteria plans. Employees can use them to reduce their salaries to claim non-taxable benefits, including childcare and medical benefits.
If you look at Form W-2 you’ll see that in Box 10 there will be a figure that shows any child and dependent care benefits offered by your employer.
Any reimbursed expenses or expenses that have been paid for can’t be added to your childcare claim.
Take away the number in Box 10 from the value of the credit you claim.
To find out more about this, you should look up Publication 503 on the IRS website.