Understanding
the Child and Dependent Care Tax Credit
The IRS
urges people not to overlook the Child and Dependent Care Tax Credit. Eligible
taxpayers may be able claim it if they paid for someone to care for a child,
dependent or spouse last year.
key points
about this credit include:
- Work-Related Expenses. The care must have been
necessary so a person could work or look for work. For those who are married,
the care also must have been necessary so a spouse could work or look for work.
This rule does not apply if the spouse was disabled or a full-time student.
- Qualifying Person. The care must have been
for “qualifying persons.” A qualifying person can be a child under age 13. A
qualifying person can also be a spouse or dependent who lived with the taxpayer
for more than half the year and is physically or mentally incapable of
self-care.
- Earned Income. A taxpayer must have earned income for
the year, such as wages from a job. For those who are married and file jointly,
the spouse must also have earned income. Special rules apply to a spouse who is
a student or disabled.
- Credit Percentage / Expense Limits. The credit is worth
between 20 and 35 percent of allowable expenses. The percentage depends on the
income amount. Allowable expenses are limited to $3,000 for paid care of one qualifying
person. The limit is $6,000 if the taxpayer paid for the care of two or more.
- Dependent Care Benefits. Special rules apply for
people who get dependent care benefits from their employer. Form 2441, Child
and Dependent Care Expenses, has more on these rules. File the form with a tax
return.
- Qualifying Person’s SSN. The Social Security
number of each qualifying person must be included to claim the credit.
- Care Provider Information. The name, address and
taxpayer identification number of the care provider must be included on the
return.
Taxpayers
who pay someone to come to their home and care for their dependent or spouse
may be a household employer and may have to withhold and pay Social Security
and Medicare tax and pay federal unemployment tax.
If you would like to schedule a Free Initial Consultation to
learn more about the tax preparation and tax planning & compliance services
we offer to businesses and individuals, send us an e-mail or call Amare Berhie
today at 651-300-4777 to schedule a convenient time.
Amare Berhie, Senior Accountant
CEO, ABA Tax Accounting
651-300-4777
We are
licensed in All States. We are affordable, experienced, and friendly. We are an
Authorized IRS e-file Service Provider.
