What is the Child and Dependent Care Credit? And how do you qualify for it?

If you paid someone to care for your child or other qualifying person so that you (and spouse if filing jointly) could work, you might be able to take the credit for child and dependent care expenses.

You (and your spouse if filing jointly) must have earned income. Earned income is considered wages or self-employment income (less SE tax deduction).

You can claim a credit for 20%-35% of your qualifying expenses. The maximum credit you can claim is:

• 35% (Maximum) - Adjusted Gross Income (AGI) of $15,000 or less

  • $1,050 for one qualifying person

  • $2,100 for two or more qualifying persons

• 20% (Minimum) - Adjusted Gross Income (AGI) of $43,000 or more

  • $600 for one qualifying person

  • $1,200 for two or more qualifying persons

    
    

    

    AGI Limits

The Child and Dependent Care Credit is nonrefundable, meaning it can't reduce your tax liability below zero or generate a refund beyond the tax you owe.

Qualifying Person

A qualifying person is:

• Under 13 and claimed as a dependent

• Disabled spouse who can't take care of themselves and lived with you for more than half the year

• Any disabled person who can't take care of themselves and lived with you for more than half the year and you claim as a dependent

  • Exceptions: If the disabled person had more than $5,200 of gross income or files a joint return

    
    

Qualified Expenses

So, what qualifies as a child and dependent care expense?

• Daycare - must meet all state and local regulations

• Day Camp (overnight camps are excluded)

• Before and after school care

• Household Services - these are services needed for care of the qualifying person and to run the home while you worked. For example, cooks, maids, babysitters, housekeepers.

  • You can also include your share of employment taxes paid on the wages for household services

  • Note: If you pay someone to come to your home and care for your dependent or spouse and you can control what work is done and how it is done, that person is probably a household employee and you may need to file Schedule H, Household Employment Taxes, with your return and pay household employment taxes.

    
    

Food and schooling are generally excluded from qualifying costs for the child and dependent care credit; however, if the items are incidental and can't be separated from the total cost then they may be included.

Qualifying expenses are limited to $3,000 for one qualifying person or $6,000 for two or more qualifying persons. Amounts paid above these limitations will not increase the credit.

Dependent Care Benefits

If you received dependent care benefits through your employer, this will reduce the amount of qualifying expenses.

Additionally, if you received more benefits than you paid out for child and dependent care expenses, the amount you didn't spend will be taxable.

Claiming the Credit

To claim the credit, you must complete form 2441 Child and Dependent Care Expenses and attach it to your return.

This form requires you to report the care providers information, including name, address, SSN/EIN, and amount paid. Most qualifying daycares and day camps can and should provide a statement giving you this information.

Contact Wissinger CPA if you have any questions or concerns about the Child and Dependent Care Credit.