Perhaps you've heard there's a tax break available for hiring a relative to be a baby sitter. Well, yes and no. If by "baby sitter," you mean someone to watch a child for a night, you can't write that off on your taxes. But if you mean someone to provide child care while parents work, it depends. Not every instance of paying a family member for child care qualifies.
When Family Members Qualify
The baby sitter tax break goes by the name "Child and Dependent Care Credit." It's a tax credit rather than a tax deduction, which is a sweet deal because it doesn't simply reduce taxable income; it directly reduces income tax liability. A $100 tax deduction might save a typical taxpayer $15 or $25. A $100 tax credit, on the other hand, saves the whole 100 bucks. In general, taxpayers qualify for the Child and Dependent Care Credit if they pay someone to watch their children – or anyone else they claim as a dependent – while they either work or look for work. This includes most baby-sitting by your relative who is not a tax dependent. For the purposes of the credit, a fulltime student going to school counts as working. A child must be younger than 12 years old for child care costs to be eligible for the credit; individuals 12 or older must be physically or mentally unable to care for themselves for the costs to be eligible. If you choose to hire a friend to baby-sit for you, that would qualify for the credit, as well.
When Family Members Don't Qualify
Taxpayers can claim the credit for costs paid to certain relatives, but not to others. You can't claim child care payments made to your spouse. You also can't claim payments made to the parent of the child being cared for. For example, if you or your spouse has a child from a previous relationship, and you pay the other parent to watch the child, those payments don't qualify for the credit. You can't claim payments to anyone else you claim as a dependent on your tax return. Finally, you can't claim payments to another of your children under age 19, regardless of whether that person is your dependent. Payments to grandparents baby-sitting taxes, siblings, aunts, uncles and cousins are generally allowed.
2018 Tax Law Changes
The 2018 Tax Cuts and Jobs Act left the provision in place, which means you can continue to claim up to $3,000 in costs for one child or up to $6,000 for two or more children. The law also left intact a tax break if you choose to set up a flexible spending account. That means you can continue to put money into that account, tax-free, until you reach $5,000 for couples filing jointly or $2,500 if you file separately. This means if you've been using your own children's friend and family service to manage your baby-sitting, you'll be able to continue doing so.
2017 Tax Law Provisions
Taxpayers can apply for the credit on up to $3,000 worth of costs for one child, or $6,000 for two or more children; the actual credit will be 20 percent to 35 percent of the eligible costs, depending on the taxpayer's income. Taxpayers apply for the child care credit using Internal Revenue Service Form 2441. On the form, the taxpayer identifies the person or organization that got paid for child care, including the caregiver's Social Security number or Employer Identification Number, and discloses exactly how much you've been paying a family member for child care.
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.