If you spend money on child care, you may be eligible for a tax credit. The child and dependent care tax credit allows you to claim a percentage of your qualifying care expenses on your tax return. According to the Urban-Brooking Tax Policy Center, 12.7 percent of families took advantage of the CDCTC in 2016, receiving an average credit of $551 per family. Before you claim your child care credit, there are a few stipulations you should understand first.
Child and Dependent Care Credit
The CDCTC is meant to assist working parents and guardians with caregiver costs. These costs can include child care like a babysitter, daycare or camp. Additionally, you can earn a credit for dependent care, such as the necessary care for a disabled spouse or other dependent. Under the CDCTC, you can earn a credit of 20 to 35 percent of qualifying care expenses costing up to $3,000 for one child or up to $6,000 for two or more children or dependents. Unlike many other tax credits, the CDCTC is available to all families regardless of their income. However, your income will be a determining factor in how much you can claim.
First, you should make sure that your caregiver expenses qualify. They must be for a child under 13 years old or a spouse or other dependent who lives with you at least six months out of the year and can’t take care of himself. This includes children who are 13 or older and are unable to care for themselves.
Next, parents or guardians who plan to file for the credit must each earn some income by working. If you are married, you must file a joint return. Parents or guardians who are in school full time or can’t take care of themselves are also eligible. One important thing to understand is that the expenses you claim under the CDCTC must be work-related. This means that you can’t earn a credit for the money you paid the babysitter for date night. You can only claim expenses that were incurred while you were working, looking for work, going to school full time or unable to care for yourself.
To get your credit, you'll also need to provide the contact information and the taxpayer identification number of your care provider. You cannot claim the tax credit if the caregiver you paid was a spouse, a parent of the child, anyone listed on your return as a dependent or your own children if they are 18 or under.
Determining Your Credit
If you meet the CDCTC qualifications, you might be wondering how much your tax credit will be. This depends on how much you spent for care in the tax year and how much income you earned over the year. You can claim up to $3,000 for one child or dependent or up to $6,000 for two or more children or dependents.
How much of that you’ll be credited is determined by a sliding scale of 20 to 35 percent, based on your adjusted gross income. Lower-income families have more need and therefore earn a higher percentage credit than upper-income families. Families who earn $15,000 or less will receive the full 35 percent, while families that make $43,000 or more will earn 20 percent. For example, say you earn $12,000 and paid $3,000 for the care of one child in the tax year. You will earn 35 percent of that $3,000, which comes out to a $1,050 total tax credit. Check the IRS website for more information on how much you could earn based on your specific adjusted gross income.
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