Paying for childcare can be a major expense for many families. That’s why the IRS offers the Child and Dependent Care tax credit. Families can claim up to $3000 for qualifying care expenses if they meet eligibility requirements.
Credit With a Purpose
The Child and Dependent Care tax credit has a very specific purpose: to offset childcare expenses (or dependent care expenses) for families in which caregivers have to be out of the home in order to work or to look for work.
This emphasis on work is an important element because it limits who can claim this credit. Parents or caregivers who are unemployed or receive only unearned income generally don’t qualify. If you (or your spouse, if applicable) are a full-time student, however, that exempts you from the earned income rule.
Details About Caregivers
The person providing the child or dependent care is also an important factor in claiming this credit. You cannot claim the Child and Dependent Care tax credit if the person providing care is:
- Your spouse
- A parent of the child receiving the care
- Another child, 18 or younger, claimed as a dependent on your tax return
- An individual claimed as a dependent on your tax return
When claiming this credit, you must provide the name, address, and Tax Identification Number (either an individual’s Social Security number or Employer Identification Number) of the caregiver so that the IRS can confirm eligibility.
Details About Dependents
In order to claim the Child and Dependent Care tax credit, the person receiving care must also meet certain criteria. They must be one of the following:
- A child (age 12 or younger) claimed as a dependent on your tax return
- Your spouse, if he or she is unable to care for him or herself and has lived in your home for more than half the year
- Another dependent claimed on your tax return who has lived in your home for more than half the year
Looking for More Guidance?
While the Child and Dependent Care tax credit can help offset the cost of child or dependent care, it does have some red tape around it. For further guidance and clarity, reach out to the team at Taxation Solutions, Inc. in Cincinnati. We can help you navigate this aspect, and others, of the tax code so that you can be sure that you are maximizing your tax savings.