Blog
Back to Blog
Childcare Tax Credit
June 14, 2013
This week’s blog focuses on the Child and Dependent Care Tax Credit (CDCTC). This credit reduces your tax liability based on a percentage of the amount of money spent on child or dependent care for the year. The requirements to qualify for the CDCTC are as follows: (1) The care expense must be for a qualifying person. A qualifying person is: your child under the age of thirteen (13) who can be claimed as a dependent on your tax return or a spouse or other dependent that is unable to care for him or herself. (2) You (and your spouse if filing jointly) must earn income during the tax year. (3)The expense must be work-related. This simply means that you are paying care expenses so that you and your spouse can work or so that you or your spouse can look for work. (4) You must actually pay for child or dependent care. Payments to a spouse, parent of the child, or your own child (unless they are nineteen or older and cannot be claimed as a dependent) do not count towards the credit. (5) If you are married, you must (generally) file a joint tax return with your spouse. If you are unmarried your filing status must be: single; head of household; or widow(er) with dependent child. (6) You must complete a Form 2441 listing the care provider’s: name; address; and social security number or employment identification number. Note that expenses are only for the care of a qualifying person if their main purpose is the person’s well-being and protection. Expenses for food, lodging, clothing, and entertainment do not qualify, unless they are incidental to and cannot be separated from cost of caring for a qualifying person. Expenses for education at the kindergarten level or higher do not qualify and neither do expenses for summer school or tutoring. The fact that the care is provided outside your home does not disqualify the expense as long as the main purpose is the person’s well being and protection. The maximum amount of this credit is $3,000 for one child and $6,000 for two or more children. The amount you can claim, however, is a percentage of your total care expenses. For example, if your adjusted gross income (AGI) is $35,000 you can claim 25% of your total work-related care expenses. If you have one child and total expenses of $5,000 then you can claim $1,250 with this credit. As your AGI increases, the percentage of expenses you can claim decreases, but there is no income limit for this credit. For full list of percentages based on AGI please see page 12 of Publication 503, available here. Lastly, to claim the credit you must fill out a Form 2441 and include these expenses on your 1040 (line 38) or 1040A (line 22). Until next time, Brennan