Reduce Your Taxes with the Child Care Tax Credit
If you paid someone to care for a person in your household last year while you worked or looked for work, then you may be able to take the Child and Dependent Care Tax Credit and reduce the amount of tax owed.
Here are 12 facts you should know about this important tax credit:
- Child, Dependent or Spouse. You may be able to claim the credit if you paid someone to care for your child, dependent or spouse last year.
- Work-related Expenses. Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month he or she was a full-time student or physically or mentally incapable of self-care.
- Qualifying Person. The care must have been for “qualifying persons.” A qualifying person can be your child under age 13. A qualifying person can also be your spouse or dependent who lived with you for more than half the year and is physically or mentally incapable of self-care.
- Earned Income Required. You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that he or she is a full-time student or incapable of self-care.
- Credit Percentage / Expense Limits. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on the amount of your income. Your allowable expenses are limited to $3,000 if you paid for the care of one qualifying person. The limit is $6,000 if you paid for the care of two or more.
- Dependent Care Benefits. If your employer gives you dependent care benefits, special rules apply. You may not take credit for amount that were excluded from your income, and you must have incurred qualifying expenses of at least the amount of the exclusion shown on your W-2.
- Qualifying Person’s SSN. You must include the Social Security Number of each qualifying person to claim the credit.
- Keep Records and Receipts. Keep all your receipts and records for when you file your tax return next year. You will need the name, address and taxpayer identification number of the care provider. You must report this information when you claim the credit.
- Form 2441. File Form 2441, Child and Dependent Care Expenses with your tax return to claim the credit.
- Joint Return if Married. Generally, married couples must file a joint return in order to claim the credit. You may still be able to take it, however, if you lived apart from your spouse during the last six months of 2015.
- Don’t Overlook Vacation and Summer Day Camps. Day camps are common during the summer months. Many parents pay for day camps for their children during school vacations while they work or look for work. If this applies to you, your costs may qualify for the credit.
- Certain Care Does Not Qualify. You may not include the cost of certain types of care for the tax credit, including:
- Overnight camps or summer school tutoring costs.
- Care provided by your spouse or your child who is under age 19 at the end of the year.
- Care given by a person you can claim as your dependent.
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