Child and Dependent Care Tax Credit

[Asad shaikh]

 

When you have young children one of the most difficult financial burdens is paying for dependent care, but some good news is that there are some relief options when it comes time to file your taxes.  The child and dependent care tax credit is available for almost anyone who has a dependent and is working.  The dependent care tax credit is different than the child tax credit, and this article is intended to help you understand that basics of the credit.  

 

How do I qualify for the child and dependent care tax credit?

 

The credit is designed ultimately for individuals working with dependents to help offset the cost burden associated with going to work every day. To qualify, you must have at least one dependent child or adult who cannot provide their own care.  You also must be working and receiving an income to qualify for this tax credit.   If you have a spouse, they must also be working or unable to provide care for the dependent at home (for example if they are on disability). 

 

Generally, the child must be your dependent, and under the age of 13.  There are specific circumstances for children and adults older than 13 to be eligible for the credit.  The child must also live with you at least half the year in the case where custody is split between parents or guardians.  The daycare center must also be a qualifying provider for the credit.  You do not qualify if you are paying your adult children to supervise your kids during the day.

 

For specific qualification scenarios and questions, it is always best to check the IRS’s official website (www.irs.gov) or speak with a tax professional.

 

How much is the child and dependent care tax credit worth?

 

It can be tricky to calculate exactly how much get back in taxes for having a child.   The basic starting point is that you get up to $3000 for one dependent, and up to $6000 for having multiple dependents in dependent care.  You do not get that full amount back as a credit however. There is a sliding scale based on your adjusted income that will provide a percentage of this amount that actually gets credited back on your taxes. 

 

For example, in the situation where your adjusted income allowed for 30% credit based on your overall income and tax bracket.  For this situation, let us also assume that you have 2 dependents living with you for the full year, and you spent $4800 on dependent care through the calendar year. Based on these rough parameters, you could expect a $1440 tax credit on your return.

This is a significant credit, which is different than a tax deduction.   Essentially, this money will go back into your pocket or directly reduce the amount of taxes you owe for the year.

Can I claim child and dependent care if I have a higher income?

One of the nice things about the child and dependent care tax credit is that is does not disappear with higher incomes.   While the percentage is less, this credit is designed with working families in mind and you can still get a good amount of the expenses you pay for dependent care back in your pocket. Source: Internettaxconnection.com