School is out for most young children, and if you are like many parents who have to pay for childcare or day camps, you are likely overwhelmed by the high costs. The hefty cost of childcare often makes parents hesitate before returning to work. Keep in mind that your situation could make you eligible for a federal tax credit that can lower your taxes. The Child and Dependent Care Credit allows you to work or look for work comfortably knowing your children/dependents are in good hands, while not overextending your budget.

Facts about the Child and Dependent Care Credit

In order to qualify for the credit, you need to meet some conditions:

• Your expenses must be directed to the care of one or more qualifying dependent which is:
  • Child under age 13
  • Physically or mentally unstable spouse unable to care for him/herself
  • Someone who has lived with you for more than half the year who is physically or mentally incapable of self-care and is either: (a) your dependent; or (b) could have been your dependent but he/she is over the gross income limit or files a joint return
• The care must be held at home, at a camp, or daycare facility.
• Your childcare/camp costs must be work related, meaning that you are forced to pay for the care in order to work.
• You need to have proof of earned income (wages, tips, salaries)
• When you claim the credit on your tax return, you have to know the name, address, and Social Security number/ employee identification number of the care provider so be sure to keep records and receipts.
• You must complete IRS form 2441, Child and Dependent Care Expenses as well as either Form 1040 or 1040A.

Be aware that…

• $3,000 is the limit for how much you can use for one child in a year using the credit; $6,000 for two or more.
• If you’re married you must file a joint return to take advantage of the credit. If you’re legally separated or if you live apart from your spouse this does not apply.
• The credit can be as much as 35% of the qualified expenses that you pay, depending on your income.
• Summer school tutoring costs as well as overnight camp expenses do not qualify for the credit.
• The care provider cannot be your spouse, parent of qualifying individual, your child who is under 19 or a dependent who you claim an exemption for on your return.

Though this credit is used extensively in the summer when it is needed by the majority of parents and guardians, it is not solely a summer tax benefit. You are able to claim the credit for care during the school year as long as you qualify.

Refer to Publication 503 for more details, and to find out if you qualify for the credit, “Ten Things to Know About the Child and Dependent Care Credit”

Questions? Contact us.