It is common nowadays for parents to be too busy to properly look after their children during the summer months, prompting them to seek out the help of daycare or day camps. If you make use of such services this summer, you may be eligible for a federal tax credit. Here is what you need to know about the Child and Dependent Care Credit:
1. Expenses Must Be for Qualifying Persons: The expenses you claim the credit for generally must be for the care of dependents under the age of thirteen.
2. Expenses Must Be Work-Related: Expenses only qualify if you require care for your dependents so that you can either work or look for work. If you file a joint return, this rule applies to your spouse as well. Your spouse meets this requirement if he or she is a full-time student, or if he or she is physically or mentally incapable of self-care.
3. Earned Income is Required: You must have earned income in the form of wages, salaries, or tips. This includes net earnings from self-employment. If you file jointly, your spouse must also have earned income unless he or she is either a full-time student or incapable of self-care.
4. Married Couples Must File Joint Returns: You must file jointly with your spouse, unless you are either legally separated or living apart.
5. Expenses Must Be for Qualifying Types of Care: You may qualify if you are paying for care in your home, at a daycare facility, or at a day camp. You may not claim the expenses for certain types of care, including the following:
• Summer school tutoring costs.
• Overnight camps.
• Care provided by either your spouse or your child who is under the age of nineteen at the end of the year.
• Care provided by a person you can claim as a dependent.
• If you get dependent care benefits from your employer, special rules may apply.
6. Credit Amount: The credit equals between twenty and thirty-five percent of your allowable expenses, depending on your income. The total expense that you can claim in a single year is limited to $3,000 for one qualifying person, or $6,000 for two or more.
7. Keep Records: You should be prepared to keep all receipts and records pertaining to your expenses, including the name, address, and taxpayer identification number of your care provider. You will submit this information on Form 2441.
Should you require any assistance in preparing your taxes, please consult Seattle CPA Alisa Na for further information.