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The Child and Dependent Care Tax Credit

 

The Child and Dependent Care Tax Credit

by Kathleen Krueger

Many parents and people caring for dependent family members can receive a tax credit for expenses paid to care for these individuals. This credit is designed for taxpayers who must pay for a dependent’s care while they go to work or look for employment. However, to qualify, you and your dependents must meet certain criteria set forth by the IRS.

Does Your Dependent Qualify?

The person that needs care must be considered a qualified dependent for the purposes of the Child and Dependent Care Credit. A qualified dependent can be a child or an adult that needs supervision or care. The general rules for a qualified dependent include the following:

• A child who is under the age of 13
• A dependent adult family member or spouse who is unable to perform self-care due to mental or physical impairments
• The dependent must have lived with you for at least half of the tax year

If your dependent meets the criteria, you may be able to claim a tax credit for the cost of their care, as long as you fulfill the IRS’ income and need requirements.

RELATED: The Child Tax Credit

Are You Eligible to Claim This Tax Credit?

The Child and Dependent Care Credit is designed for people who must pay dependent care expenses while they’re earning an income. To qualify, you must have earned income from wages, self-employment, or other types of taxable income. Income from certain sources (such as unemployment compensation, dividends, interest, worker's compensation, welfare, social security, or child support) is not considered “earned income.”

In addition to earning income, you must be paying for the care of a qualified dependent. The care expenses must be work-related, which means that the care is necessary in order for you/your spouse to work (or look for work). Dependent care expenses that are not work-related do not qualify for this tax break.

Also note that you cannot claim the Child and Dependent Care Credit if your filing status is “married filing separately.”

What Expenses Can Be Included?

The Child and Dependent Care Credit is worth a percentage of the total costs you paid to care for your dependent. This percentage may be as high as 35%, depending on your income level.

To figure the total amount spent on dependent care, add up your work-related care expenses, including the following:

Payments Made to Care Providers. The money you pay to care providers, such as a daycare or an at-home care provider, are eligible expenses. However, the payments cannot be made to the child's parent, your spouse, your own child (under age 19), or to another person you claim as a dependent.

Expenses to Care for Your Home. Some household expenses (such as a home repairs, housekeepers, or cooks) may be partially included if they are used to care for your dependent.

Transportation, Food, and Other Expenses. Certain expenses, like food or transportation, may be eligible if they are required as part of your dependent’s care.

You will need to provide proof of your expenses, including information about your dependent’s care provider(s). The Child and Dependent Care Credit has specific restrictions, so it’s recommended that you seek the advice of a tax professional before claiming this credit on your income tax return.

For more information, please see IRS Publication 503 (Child and Dependent Care Expenses).