One of the biggest expense’s families face is paying for adult dependent care and child care. These are nonnegotiable expenses.
If you’re struggling, then help is at hand. The IRS does offer tax credits to help you pay for these types of care. So, if you’re taking care of someone with a disability or you just need to send your child to daycare, you may be able to claim a child care tax credit worth up to 35% of your total expenses.
Table of Contents
The Basics of the Child and Dependent Care Tax Credit
Obviously, you need to have a dependent child or an adult dependent to claim. The dependent must also qualify as someone who can’t provide themselves with self-care.
Any care provided must be for the purposes of enabling you to work, find a job, or to attend school on a full-time basis. If you’re married, these same rules also apply to your spouse. And your spouse also must have earned income. The exception to this rule is if your spouse is disabled.
This credit can’t be claimed if you file separate returns as a married couple. There are exceptions to this rule, but it’s extremely uncommon to see these exceptions come into play.
Your Dependent or Qualifying Child
Qualifying children must be under the age of 13. Older children, in order to qualify, must have some form of physical or mental disability. For dependents over the age of 13, you can claim for adult day care expenses. This also applies to a disabled spouse.
Any care expenses can only apply to a dependent who lives with you for at least half of the year. And you also must pay more than half of your home maintenance costs. Qualifying children should be claimed as a dependent on your tax return.
But what about if you’re a divorced or separated parent?
In this case, you may enter into an agreement to allow a noncustodial parent to claim a child as a dependent on their tax return. In this situation, you can still claim the child care credit even if the child didn’t live with you for half of the year
But custodial parents are the only ones who can take the credit due to the requirement for residency.
The Day Care Provider Must Qualify
To qualify for this credit, the person or entity providing care can’t be your dependent. For example, you can’t allow your 12-year-old daughter to care for your 5-year-old son and still claim the credit. In this scenario, your daughter would have to be above the age of 19 and not claimed as a dependent on your tax return.
Daycare expenses also can’t be paid to a spouse or any other dependent.
With regards to summer camps, summer day camps count as a qualifying provider but overnight camps don’t.
The IRS reasons that an overnight camp cannot count as a type of work-related expense. Day camps do count, even if they specialize in areas like sports.
How Much is this Tax Credit Worth?
The Child and Dependent Care Credit is aimed at covering a percentage of your daycare costs up to a maximum of $3,000 for one dependent and capped at $6,000 for two or more dependents. These figures aren’t what you’ll get back, though.
Your actual credit is the percentage of these amounts. For example, if you have two children and you spend $7,000 the credit will only apply to the initial $6,000 you spend.
So How Do You Calculate this Credit?
The percentage you’re entitled to can range from 20% of expenses to 35% of expenses. It ranges based on your adjusted gross income. There are no limits regarding how much you earn.
A free dependent calculator is available online to quickly estimate your credit amount
You can also read IRS Publication 503 for a full chart on the percentage you’re entitled to.
The credit will also be limited based on your earned income. If you’re married, your spouse’s income will be factored into this.
For example, if your earned income was $5,000 for the year, you could only claim $5,000 in expenses, despite the fact you spent $10,000 in daycare expenses.
All calculations are based on your earned income and what you spent; whichever number is lower. Any employer-sponsored childcare programs also must be deducted.
Online Tax Filing Figures it Out for You
Online tax software will ask you simple, plain-English questions about your family and will determine for you who qualifies for the dependent tax credit on your tax return, so you can be sure you’re getting the biggest tax refund you deserve