Child care expenses can alter your household budget. When you want to recover some of the expenses paid for child care or childcare during the year, you can do so on your annual tax return.
The IRS created the tax credit for child care and dependents, for working parents who need to pay for babysitter or qualified caregiver services.
Being able to receive this tax credit is not as simple as adding them to your tax return. You must meet certain specific and rigorous criteria in order to deduct the expenses for child care from your annual taxes. In this article we will tell you what this credit is about and how you can take advantage of it.
What is the Child and Dependent Care Tax Credit?
This tax credit was designed by the IRS for working parents who must pay for the care of their children or their parents. Therefore, this credit is exclusive for young children and disabled dependents.
In order to claim it, you have to make sure that your children or dependents meet the age requirements set by the IRS.
Also, the IRS allows taxpayers to claim credit for up to two children. You can have a credit of up to $ 3000 per child, up to a maximum of $ 6000 if you have two children.
The credit applies to any debt to the IRS, and if the credit exceeds your debts, the difference will be returned to you.
Due to the amount of money you could receive for this credit, the IRS is very strict and requires that you meet several formalities in order to legally claim it on your return. This means that, your statement will be carefully reviewed to ensure that you use the credit properly.
Requirements to claim the credit
The IRS implemented several requirements to claim the credit for child and dependent care expenses. First, you can only claim them if you are working.
You will not be able to deduct the expenses you pay for care at night, when you go out on a date. Nor can you deduct the costs associated with hiring a personal assistant or a nanny. The expenses are made just because you are working and cannot take care of your children for yourself during that time.
You can claim this credit if you hire a family member, only if they meet these requirements:
- They are at least 19 years old
- They are not your legal dependent
- It is not your spouse
- Not a son of yours
In addition, the child care credit can only be used for children under 13.
Qualifications to claim credit for child care
Before using this credit in your tax return, it is very important that you understand its purposes and the requirements to legally deduct it from your taxes.
If you abuse this tax credit, you will run the risk of repaying to the IRS the credit received. You could also be penalized for fraud and pay expensive penalties.
To avoid abusing this credit, you should understand that it applies only to those expenses you pay for daily care or babysitting while you are at work. You cannot deduct expenses paid to babysitters when you go out at night. These expenses are considered for personal use and do not apply to this tax credit.
In addition, your status at the time of filing your taxes also affects your ability to take advantage of this credit. If you
file separate from your wife, for example, you will not be able to use this credit. You must file a jointly or as a single taxpayer to take advantage of the child care credit.
Similarly, the expenses you pay for child care should go to a qualified child care provider, as well as a legal US citizen. You are expected to show both on your tax return. To do this, you must include the Social Security number of the babysitter or the Employment Identification Number or EIN in your statement.
Finally, you can only claim child care expenses for your children under 13. You cannot use the credit for children over 13 years old unless they are physically disabled and cannot take care of themselves while you are at work.
Can I use the credit for child care if my spouse does not work
One of the questions we receive most in our offices is whether this credit can be claimed by taxpayers if their wives or husbands are not working.
To claim this credit you must show that the payment to someone else to take care of your children or older parents is justified, because you need to go to work.
This will depend on what the unemployed husband does; that is, if your wife or husband studies part-time or full-time, of course you can claim this tax credit. If not, then you will not be able to justify the claim for the child care credit.
Limits for deductible expenses for child care
We know that the tax credit is designed to help you recover some of the disbursements made for babysitting services during the year, but there is a limit.
If your income is at least $15,000 a year, you can deduct 35% for the care of your children or older parents. However, if your income is $43,000 or more per year, you can only deduct 20% of these expenses.
Similarly, the IRS limits the number of children for whom you can claim expenses. You have the right to claim up to two children, even if you have more than two children and all of them need babysitting.
Receive advice to take advantage of this tax credit
At Global Tax, we have more than 20 years of experience and can help you plan your annual taxes, prepare your return and pay what is just.
If you have young children who require child care, you can visit us at our offices located at 8133 Leesburg Pike, Suite 920 Vienna, Virginia 22182, or call us at (703) 533-3636 to schedule an appointment, we will be happy to help you with your tax and financial planning.
What we know means money!