Summertime Tax Planning: Child & Dependent Care Credit

So it is summertime* and you have enrolled your child or children into summer day care or day care so you can work or look for work.  You may qualify for a federal tax credit if you meet the following criteria:

Care for Qualifying Persons.  Expenses must be for the care of one or more qualifying persons.  A dependent child must be under age 13.

Work Related Expenses.  The reason you are paying for this care must be so you can work or look for work.  If you file a joint return, this rule applies to your spouse as well.  If a spouse is a full time student or physically or mentally incapable of self-care you still meet this rule.

Earned Income.  You (and your spouse) must have earned income.  Earned income is wages, salaries, tips and self-employment income.  If a spouse is a full time student or physically or mentally incapable of self-care he or she is considered to have earned income.

Joint return, if married.  A joint return must be filed if you are considered married for the tax year to take advantage of this credit.

Type of Care.  Includes care at home, daycare facility or day camp.

Credit Amount.  The credit is between 20% & 35% of your allowable expenses depending on your income.

Expense Limits.  $3,000 is the limit for a year for one qualifying person or $6,000 for two or more qualifying persons.

Care that Does NOT Qualify.  This includes overnight camps; summer school tutoring; care provided by your spouse or your child who is under 19 at the end of the tax year; or care given by a person you can claim as your dependent.

Remember to keep all receipts showing the payments you’ve made throughout the summer.  As we will ask for them, along with the name, address and taxpayer identification number of the care provider so we can properly complete Form 2441.

If you have any questions related to qualifying for this credit please contact our office.

 

*This credit is not only available during the summer months.  It is applicable to any months that the taxpayers pays for child and dependent care expenses as long as the above criteria are met.