Our Congress did not make it easy to understand the Child and Dependent Care Credit. You may be able to claim the child and dependent care credit if you paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work. You may not take this credit if your filing status is married filing separately. The amount of the credit is a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income.
A qualifying individual is a dependent child under age 13 when care is provided, a spouse that is physically or mentally unable to care for themselves, an individual who is physically or mentally incapable of self-care, lived with you for more than half of the year, and either: (i) is your dependent; or (ii) could have been your dependent except that he or she has gross income that equals or exceeds the exemption amount, or files a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer’s return.
In order to claim the credit, detailed information for the organizations or person(s) you have hired to administer the necessary care to your child and/or dependent must be provided. This information includes name, social security number or federal identification number and address. Other criteria must be met to be eligible for the credit. Married taxpayers must file a joint return, as Married Filing Separate filing status does not qualify for the tax credit. Taxpayers must have earned income in order to claim the credit. Earned income is income that is derived from active participation in a trade or business, including wages, salaries, tips, commissions and bonuses.
The amount of available tax credit is also limited. The Child and Dependent Care Tax Credit is limited to $3,000 of the total child/dependent care expenses per year for one qualifying individual and $6,000 for two or more qualifying individual’s expenses.
The tax credit falls anywhere between 20-35% of the limited expenses, depending on the adjusted gross income (“AGI”) of the taxpayer. Lower income is the highest percentage (under $15,000) and higher income (over $43,000) is the lowest percentage (not less than 20%).
While most tax credits have limits based on a taxpayers’ AGI, the Child and Dependent Care Tax Credit does not phase out at higher income levels.
To learn about more about this tax credit and other tax credits available to taxpayers, please contact us.
At Jones CPA Group, we’re more than a public accounting firm. Since 1979, we’ve built a reputation as accessible professionals who help our clients improve their profit margins. Leslie Gamma can be reached via email at leslieg@jonescpagroup.com.
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