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Paying someone to care for your child, elderly parent, spouse or other dependent while you work or look for work can be expensive.
However, you might be able to offset those costs if you qualify for the child and dependent care tax credit. You could be eligible to claim a credit between 20% and 35% of the amount you paid for qualifying child or dependent care during the tax year.
Here’s what you should know about the child and dependent care tax credit.
- Who qualifies for this credit?
- What type of care qualifies for the credit?
- Who is a qualifying dependent for this credit?
- How much could you save with this credit?
- Additional limitations you should be aware of
- How to claim the credit
Who qualifies for this credit?
Generally, you could be eligible for the child and dependent care tax credit if you paid for the care of a child, or other qualifying individual, so that you (and your spouse, if filing jointly) could work full or part time. You may be eligible for the credit if you paid for child or dependent care while you were actively looking for work as well, but you must have earned income for the year in order to claim this credit. If your filing status is married filing separately, you generally can’t take this credit, though there is an exception. Check out the Form 2441 instructions to learn more.
If you’re unsure about whether you qualify for the child and dependent care tax credit, the IRS has an interactive tool on its website to help you decide. To use the tool, you’ll need to provide the age of the child or dependent that received the care and your filing status.
What type of care qualifies for the credit?
Many types of care can qualify for the credit, including care provided in your home; the home of a caregiver; or at a childcare center, nursery or day camp. Tuition expenses for kindergarten or a higher grade of school are not eligible, though the costs of before- and after-school care are.
However, you can’t claim any money you paid to a spouse, a parent of the child or dependent, someone else you can claim as a dependent on your tax return, or to your child who is younger than 19.
Who is a qualifying dependent for this credit?
Not every instance of paid care for a dependent will qualify for this credit. Generally, you might be able to claim this credit for a dependent you claim on your return who is younger than 13 when the care is provided. Additionally, you may claim the credit if it’s for a spouse or qualifying dependent of any age who is physically or mentally incapable of self-care and lived with you for more than half the year.
How much could you save with this credit?
Like all credits, if you qualify for the child and dependent care tax credit, the amount of your credit will reduce the amount of federal income tax you owe. How much it might reduce your tax obligation depends on several factors.
The amount of the credit ranges from 20% to 35% of your allowable expenses, depending on your adjusted gross income. As your income increases, the percentage of your allowable expenses that you claim decreases. The credit percentage begins to decrease with an AGI of $15,000. If your AGI exceeds $43,000, the maximum credit you can receive is 20%.
When calculating the credit, you may use up to $3,000 of dependent care expenses if you have only one qualifying dependent and up to $6,000 if you have two or more qualifying dependents.Learn more about adjusted gross income
Additional limitations you should be aware of
If you or your spouse receive dependent care benefits from your employer, you cannot claim the child and dependent care tax credit for these amounts. Instead, you’ll use Form 2441 to report those benefits as being excluded from your taxable income. Likewise, if you have a dependent care flexible spending account at work, you cannot claim the credit for any expenses reimbursed through that plan.
The child and dependent care tax credit is not refundable. This means that while the tax credit may reduce your regular tax liability to zero, you will not receive a refund from solely the tax credit.
How to claim the credit
If you qualify for the child and dependent care tax credit, you don’t have to itemize your deductions to claim it. Remember though, that it’s not available to taxpayers whose filing status is married filing separately, unless you fall into the exception.
To claim the credit, you’ll complete and attach Form 2441 to your individual tax return. Form 2441, Child and Dependent Care Expenses, is one of the many common tax forms supported by Credit Karma Tax®, the completely free online tax filing service.
On Form 2441, you’ll need to provide the name, address and tax identification number of your childcare provider or providers. You’ll also report the amount paid to each person or organization, and the amount paid per child.Tax breaks for parents: Save a bundle on your bundle of joy
While the rules for the child and dependent care tax credit may seem complex, it’s worth seeing if you qualify for this credit. A credit reduces your tax bill dollar for dollar. That means a $1,000 tax credit reduces your tax obligation by the full $1,000.
As any working parent knows, raising kids is expensive. If you qualify for it, this credit could help ease the burden a bit.
Christina Taylor is senior manager of tax operations for Credit Karma Tax®. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.