Child and Dependent Care Credit

February 7th, 2011

If you paid someone to care for a child under age 13, or a qualifying spouse or dependent to allow you to work or look for work, you may be able to reduce your tax by claiming the Child and Dependent Care Credit on your federal income tax return.  To qualify, your spouse, children over the age of 13, and other dependents must be physically or mentally incapable of self-care.

The good news is that increased child care benefits provided as part of the Bush era tax cuts have been extended through 2012.  That means, instead of the credit percentage dropping to 30%, the higher 35% credit will continue for two more years.  In addition, the maximum expenses qualifying for dependent care credit will remain at $3,000 ($6,000 for two or more qualifiers) instead of dropping to $2,400 ($4,800 for two or more qualifiers) as previously scheduled.  The credit is a percentage of the amount of work-related child and dependent care expenses paid to a care provider.

To claim the credit for child and dependent care expenses, the following conditions must be met:

  • The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.
  • You – and your spouse if you are married filing jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment.  One spouse may be considered as having earned income if he or she were a full-time student or physically or mentally unable to care for themselves.
  • The payments for care cannot be paid to your spouse, someone you can claim as your dependent on your return, or your child who will not be age 19 or older by the end of the year even if he or she is not your dependent.  The care provider(s) must be identified on your tax return.
  • Your filing status must be single, married filing jointly, head of household, or qualifying widow(er) with a dependent child.
  • The care must have been provided for one or more qualifying persons.
  • The qualifying person generally must have lived with you for more than half of 2010.  There are certain exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents.
  • If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer.  If you are a household employer, you may have to withhold and pay social security and Medicare tax and pay federal unemployment tax.

There may be some additional limitations on the amount of credit that can be claimed.  If you received dependent care benefits from your employer or the care was provided in your home, other rules will apply.  Please contact us for additional details.

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