Child and Dependent Care Expense Tax Credit
The Dependent or Child Care Expense tax credit generally applies if a taxpayer pays someone to take care of:
- One or more dependent(s) who are under age 13
- One or more dependent(s) who are not able to care of themselves
- A spouse or qualifying relative who is unable to take care of their self.
Furthermore, if a taxpayer who received dependent care benefits from an employer during the tax year, these payments might be excluded—in full or part—from their annual taxable income. Here is an overview of all child related tax credit and tax deductions.
Note: The Child Tax Credit is different from the Child and Dependent Care Tax Credit (CDCC) and you might qualify for both on your next tax return. The Child and Dependent Care Tax Credit can be up to 35% of your employment-related expenses and is nonrefundable. To qualify, you must pay these expenses so you (and your spouse if filing jointly) can work or look for work. On qualifying employment related expenses, a taxpayer can claim up to $3,000 for ONE qualifying person or child, and $6,000 for TWO or more qualifying persons or children. The maximum child dependent tax credit is 35% of the employment related expenses. Therefore, the greater the adjusted gross income (AGI), the lower the percentage of employment related expenses that are considered in calculating the tax credit. Once the AGI is over $43,000, the maximum tax credit is 20% of the employment related expenses. Complicated? Let the eFile Tax App do the work for you when you prepare and eFile!
Dependent and Child Care Credit Qualifications
You will generally qualify for the Child and Dependent Care Tax Credit if you meet all of the following conditions:
A: Qualifying Person Test
You have a qualifying dependent under the age of 13 as of December 31. If you have a child of divorced or separated parents or parents living apart, this child can still be treated as a qualifying person or dependent if:
- The child was under age 13 as of Dec. 31 or was either physically or mentally unable to care for herself or their self
- The child received over half of the support during the tax year from one or both parents. The parents must be legally separated under a decree of divorce or separate maintenance, separated under a written separation agreement, or have lived apart at all times during the last 6 months of the calendar year
- The child was in the custody of one or both parents for more than half the year and the taxpayer was the child's custodial parent. Read this IRS Publication 501 for more details on who a custodial parent is.
There are exceptions for a qualifying person who was born or died during the year and for a child of divorced or separated parents.
B: Earned Income Test
A taxpayer or taxpayers (if filing married filing jointly) must have earned income (i.e. wages, salaries, taxable employee payments, disability pay reported as wages, strike benefits, net earning from self-employment, nontaxable combat pay, a net loss from self-employment reduces earned income) during the tax year. There are special rules for a full time student-spouse or a spouse who is unable to take care of himself or herself due to physical or mental disabilities; in this case, the spouse must live with the taxpayer. See more details on earned income in IRS Publication 503.
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C: Work-Related Expense Test
- A taxpayer must pay child and dependent care expense so that the taxpayer (and spouse if filing married joint—MFJ) can either work or seek employment. A taxpayer or spouse can work for an employer or in an owned business as a full-time or part-time employee, either from an office or from home. For example, if a taxpayer works during the day, their spouse works at night, and there are care payments made for the 5 year old child during the taxpayers working hours while the spouse is sleeping, these are considered qualifying work related expenses.
- These care expense payments must be made to somebody the taxpayer (and spouse if filing MFJ) can not claim as a dependent on the tax return. If these payments are made to a child, stepchild or foster child, this child CAN NOT be a dependent on the taxpayer's tax return and must be age 19 or older by December 31.
- Child and dependent care expense payments can not be made to the taxpayer's spouse or the parent of the qualifying person if the qualifying person is the taxpayer's child and under the age of 13.
- Your filing status is Single, Married Filing Jointly, Head of Household, or Qualifying Widow(er) with a Dependent Child.
- You (and your spouse if married filing jointly) earned income from employment or self-employment. You are exempt from this requirement if you were a full-time student or disabled.
- You paid someone to provide care for a qualifying person and the care provider was not someone you could claim as a dependent, the parent of your qualifying person, your spouse, or your child under the age of 19 (regardless of whether they are a dependent).
- You had to pay for child or dependent care so that you (and your spouse if married filing jointly) could work, seek employment, attend school, or if you were disabled.
- Note: The cost of sending kids to day camp in the summer counts toward the Child and Dependent Care Credit; overnight camps don't count.
D: Joint Return Test
- The Single or Head of Household can qualify for this Child and Dependent Care Tax Credit
- Couples who file a tax return as married filing jointly—MFJ—may qualify for the tax credit. If a taxpayer is legally separated or living apart from a spouse, you may be able to file a tax return as married filing separate and still qualify for the credit. A taxpayer is considered married and is eligible to take the credit if all the following apply:
- You file a return apart from your spouse
- Your home is the home of a qualifying person for more than half the year
- You pay more than half the cost of keeping up your home for the year
- Your spouse does not live in your home for the last 6 months of the tax year
E: Care Provider Identification Test
- Provide the identity (SSN or EIN) of the care provider, and the name and address of the same
- Use Form W-10 to request this information from the care provider
- If the care provider is a household employee, obtain form W-4 from the provider/employee
- If you are residing in a foreign country, and your care provider does not have a SSN or EIN (or U.S. taxpayer identification number) enter “LAFCP” (Living Abroad Foreign Care Provider) in the space for the care provider's taxpayer identification number.
F: If You Are Missing Care Provider Identification
- If you meet the other requirements to claim the Child and Dependent care credit, but are missing the social security number or other taxpayer identifying number of a provider, you can still claim the credit by demonstrating "due diligence" in attempting to secure this information.
- If a provider of childcare refuses to give you the identifying information, you can still claim the credit. You must provide whatever information is available about the provider (such as name and address) on Form 2441, Child and Dependent Care Expenses. You should write "See Attached Statement" in the columns requesting the missing information.
- The attached statement should explain that you requested the provider’s identifying number, but the provider did not give it to you. This statement will support a claim of the use of due diligence in trying to secure the identifying information.
What Are Dependent Care Benefits?
- Employer-sponsored payment for care providers (fair market value) either directly paid to the provider or to you
- Pre-tax contributions paid by you (the taxpayer) under a dependent care flexible spending program
- Your salary may have been reduced for the payment of care provider expenses by the employer (Box 10 of the W-2 should show dependent care benefits). Benefits as a partner should show on box 13 of Schedule-K1 form 1065. These amounts need to be listed under Code "O" on Form 2441, Part III. The eFile tax app will guide you through this when you prepare your tax return
- Note: Your employer will be able to tell you if employer provided dependent care benefits under a qualified plan can be excluded from your income.
- For additional limits or restriction on what dependent care benefits are and how to report them read this publication on Child and Dependent Care Expenses.
Earned Income Limit
The annual tax year work-related expenses used to calculate the dependent care credit can not be more than:
- A: the earned income for the year (for singles)
- B: the smallest amount of the earned income - of one spouse - for the year (for married couples and if both spouses worked). For example, if one spouse had $18,000 in earned income and the other spouse had $2,000 in earned income, and the work related expenses were $3,000, then the amount to calculate the dependent credit can not be over $2,000 (as this is the smaller amount of earned income between both spouses).
Child and Dependent Care Credit Amounts
The tax credit for child and dependent care expenses is nonrefundable. On qualifying employment related expenses a taxpayer can claim up to $3,000 for ONE qualifying person or child, and $6,000 for TWO or more qualifying persons or children. See also the qualifying person test under Section A above.
For example, if you paid $400/month for after-school care for your child who turned 13 on June 1, you can use the $2,000 of care expenses from January to May to calculate the credit because it is not over $3,000. However, as of June 1, the 13-year-old child would no longer be a qualifying person.
The maximum credit is 35% of your employment-related expenses. Generally, the more income you earn, the lower the percentage of employment-related expenses that are considered in determining the credit (see the detailed tiers below). Once your adjusted gross income is over $43,000, the maximum credit is 20% of your employment related expenses. The eFile tax app will create the calculations for you and generate form 2441. See more detailed information about the Child and Dependent Care Credit.
If a spouse is a full-time student or is unable to care for themselves, you are treated as having earned income for each month in the amount of $250 for one qualifying person, or $500 for two or more qualifying persons at any time during the year. For more information on these and other exceptions, read this detailed information about the Child and Dependent Care Credit
Care Expenses Paid Last year
You will need to complete Worksheet A for Form 2441 if you had qualified dependent care expenses last year but the maximum amount of dependent care benefits were not paid until this year. You can also do this if a credit for the maximum for this year was not claimed, and you paid last year's care expenses. This worksheet will also show the adjusted gross income phase out amounts and will show the amount you might qualify for on your next tax return. In order to complete this step easier, start the eFile tax app and these calculations will be done for you, before you e-File your tax returns.
How to Claim the Dependent, Child Care Tax Credit
eFile.com makes it easy for you to claim the CDCC on your tax return. Once you enter your childcare expenses for your dependent, we will prepare the appropriate form for you and your completed return will then include the 2441, Child and Dependent Care Expenses—eFileIT.
When you provide the information for the credit, you must include the Social Security Number (SSN) of each qualifying person in order to claim the credit. Additionally, you must provide the name, address, and taxpayer identification number of your child or dependent care provider.
If you cannot obtain or are missing the social security number or other taxpayer identifying number of a child care provider, you can still claim the credit by demonstrating "due diligence" in attempting to get this information. Or, if a provider of childcare refuses to give you the identifying information, you can still claim the credit. If you need special instructions for this when preparing your return on eFile.com, contact us and we can assist you.
Did Somebody Claim Your Dependent?
A qualifying person for the Child and Dependent Care Credit may only be claimed on one tax return. If a dependent is claimed on more than one tax return (for example, a child is claimed by both divorced parents), then the IRS will apply a set of tiebreaker rules to see who gets to claim the dependent.
See what other tax credits and tax deductions may be available to you.
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