Individuals who pay for child or dependent care to be able to work or search for work may be eligible to claim the Child and Dependent Care Tax Credit. The credit is a function of the expenses paid to the care provider as well as the individual's adjusted gross income. To use this credit, it is important to consider some expenses that can be deducted as well as the definition of a qualifying individual who is cared for.
The child care tax credit can be claimed if someone must pay for services to provide care to either a child under the age of 13 or another qualifying individual who spends at least 8 hours per day in the same household. The maximum expenses that may be used for this credit are $3,000 per year if there is one qualifying individual or $6,000 per year if there is more than one. Additionally, these expenses must be reduced by some care benefits provided by the payer's employer, if there are any; the expenses cannot exceed the income of the payer or of the payer's spouse, whichever is less.
The child care tax credit and the dependent care tax credit can only be claimed if care is provided to a qualifying individual. A qualifying individual is considered to be one of the following:
- A dependent child who is under the age of 13 at the time that the care is provided
- A spouse who is incapable of self-care and who has the same residence for at least half of the year, or any other individual who is a dependent and is physically or mentally incapable of self-care as a result of a physical or mental defect, who requires another person's full-time attention for his own safety and who has the same residence for at least half of the year.
It should be noted that if a person is a qualifying individual for only a part of the tax year, then only those expenses which are paid during that part of the tax year can be included in the calculation for the credit.
The care payer who claims the tax credit must also meet all of the following conditions to be eligible:
- If married, the payer must file a joint tax return.
- Payment must be made to a care provider who is not the payer's spouse, parent of the child who is the qualifying individual, a child under the age of 19, or a dependent of the payer or the payer's spouse.
- The name, address, and taxpayer identification number of the care provider must be provided on the tax return.
- The taxpayer identification number of each qualifying individual must be provided on the tax return.
If all the above conditions are satisfied, an individual can claim this tax credit. Although childcare and other care can sometimes be a costly matter, there is often no other alternative for someone who has to work and cannot care for their dependents. Fortunately, the Child and Dependent Care Tax Credit can help alleviate someone of these costs.