Do you pay to put your child or children in daycare or some other form of child care so you can work and earn a living for your family? If so, then you might be entitled to a tax credit when filing your tax return. The Child and Dependent Care Credit is designed to lessen the financial burden for those paying for child care. The maximum you can claim for this credit is $3,000 for one person or $6,000 for two or more people. For married couples, both need to have earned income to be eligible for credit. Does this sound like a credit that applies to you? Great! Before you claim it, though, there are some things you need to know that will help you when it comes time for prepare your return or begin your tax planning.
- There Are Exceptions to the Age Cut-Off
First of all, understand that there’s an age cut-off for this credit. Specifically, once your dependent reaches the age of 13, any care you pay for will no longer be eligible. However, there are exceptions to this; for instance, if you have a teenager with special needs or another older dependent who is physically or mentally unable to care for him or herself, then you may still be able to claim this credit.
- Payments Cannot Be Made to a Dependent
The care you pay for must be paid towards a care provider that is not one of your dependents. For example, if you’re paying your 17-year old son to babysit his 10-year old brother while you’re at work during the summer, you cannot claim that money towards the dependent care credit. This isn’t to say that you cannot claim care costs paid to family members such as your parents, an aunt, uncle or cousin as long as they are not your dependent.
- Not All Care Counts Towards the Credit
The Dependent Care Credit is designed to alleviate some of the financial stress of paying for child care while working or looking for work. Therefore, child care that you utilize for personal reasons (such as a night out with friends) is typically not eligible to be claimed as part of this credit. After-school programs, and daycare are also two main types of care that are allowed to be claimed. Summer day camp costs also qualify for the credit if you are working or looking for work.
- You’ll Need Your Provider’s Information
When it comes time to file your taxes, keep in mind that you’ll need certain information about your care provider in order to fill out the forms properly. Specifically, you will need their name and/or business name, address, along with either their social security number or their employer ID number, whichever is applicable. Without this information, the IRS will disallow the credit.
There is one exception to this. If your provider falls into the category of being tax exempt, you will not need the employer ID number. Simply write “tax exempt” on the form and that will be enough.
- You Can’t Claim Reimbursed Amounts
If you’re receiving any kind of aid from any entity to help pay for your dependent care expenses (whether it be a private or public organization providing you with assistance), be aware that you are not allowed to claim these amounts as part of the dependent care credit. For example, say you spent a total of $5,000 on eligible child care over the course of the year. However, you’re employer reimburses you for half the amount ($2,500).
When it comes time to complete your taxes, you can only claim the amount you paid minus the reimbursement received, so you would only be able to claim a total of $2,500 paid out-of-pocket for dependent care expenses.
These are just a few of the most important facts to keep in mind when it comes to claiming the Dependent Care Credit on your taxes. While claiming this credit won’t completely offset your dependent care costs incurred throughout the year, it should still help you out quite a bit. If you have questions or are in need of tax planning help , contact East Coast Tax Consulting today.